Since I screwed up previously, I decided to hunt down the missing people this time around, and found a trap door in one of the houses that led to a subset of tunnels which seemed to connect most of the central structures. In there I also found remains being eaten by a giant skeever who somehow managed to get the drop on me. In it's belly was a necklace that the Dunmer man recognized to be Maisi's, his wife. I guess she didn't find another way out after all.
Super sneaky for a big rat!
The other missing person was the crazy guy's brother who had left him a key and a not so obfuscated clue of looking where he would need to hold his breath. I jumped in the lake and found a submerged house that had a passage into an even deeper underwater cave. I really wish I remembered to learn or bring water breathing equipment, finding an air pocket was hectic. Eventually an exit led out of the water into a chamber with some very hungry Argonians.
If only more NPCs were smart enough to back down.
They were smart enough to let me pass to find the chest which was the "treasure" the crazy guy had been looking for all along. Inside wasn't treasure though. It was another key to a room in the palace. It was then that I realized I had overlooked one suspect...