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Dr. Elrath is a bad guy, and he's involved in some nefarious plots in the area. Before visiting his house, you might want to complete a quest for Hugh in the Farms area. That way you'll learn a little bit about the doctor before meeting him.
Dr. Elrath won't show up at his house until you've triggered the cut scene at the gate to the quarantined part of the Poor Quarter.
1 - Front Door
If Dr. Elrath is home, then the front door will be unlocked. However, when you go inside, no matter what you say to him, he'll shortly leave and lock the door behind him. Then you'll need the key at #2 (it won't show up until Elrath leaves) to enter the house.
If you know about the poison storage room at the Blue Boar Inn, Dr. Elrath will simply claim that his key to the room was stolen, and that he doesn't know anything about the poison.
If you can't see the front door, press the alt key to highlight it.
2 - Key
Once it appears, it'll unlock the front door (#1).
3 - Lanterns
Your goal inside Dr. Elrath's house is to reach his basement so you can search for evidence against him. To do that you'll have to manipulate the lanterns (#3a-#3e) to open the three locked doors between the main room and the room with the stairs (Exit A). If you hover your mouse over the lanterns, you'll see that some of them have a wire connecting them to the wall. These are the ones you'll have to click on.
Here's the order of clicking on the lanterns to open the doors:
3b and 3c: opens the first door and unlocks the bedroom door
3d: opens the second door but closes the first door
3e: opens the first door
3c twice: closes the first and second doors, and then opens the first door again
3d: closes the first door and opens the second and third doors
You don't need to click on lantern #3a at all.
4 - Locked Cabinet
The key is on the table right next to it.
5 - Chest
The chest contains the key needed to open the door at #6.
6 - Door Blocked by Crates
Move the crates out of the way to reveal the door. Then use the key found in the nearby chest (#5) to unlock it.
7 - Djinn
The djinn can be tough to kill at a low level, but it's also susceptible to the "freeze" spell.
8 - Letter
The letter implicates Dr. Elrath in the "plague" that has been killing people in the Poor Quarter. When you pick it up, you'll earn 20,000 experience and 1 point of reputation.
If you have the letter in your possession, then when you reach the front room of the house you'll meet up with Dr. Elrath again, and he'll throw you out and lock the door. This time there won't be any way to open the door again, so make sure you've collected the two cure flasks (#9) before you leave.
You'll never see Dr. Elrath again, but there are two more parts to the quest. When you leave Rivertown you'll be attacked by three assassins hired by Dr. Elrath, and when you reach Commander Ralph in the Headquarters of the Town Watch, you'll be able to turn in Dr. Elrath and receive an invitation to the castle.
9 - Cure Flasks
You can use these flasks to cure plague victims in the Poor Quarter. Since there are three plague victims and only two flasks, you'll have to make a choice. See the Poor Quarter section for more information.
A. Stairs between the main level and the basement level.