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1 - Sentry

Even if you know the password, there isn't much reason to give it to the sentry. That's because you'll get about 75,000 experience for killing the sentry, and you'll get nothing for telling it the password. Plus, nothing beyond the sentry will change for the worse if you kill it.


2 - Wooden Fence

You'll have to drag the fence out of the way to move deeper into the mines.


3 - Moriendor

Moriendor, as bad guys are wont to do, will explain how he tricked Gregor (the mayor of the Dwarven Village) into helping the Black Ring sow discord in the world, and how such discord will make the Sword of Lies stronger. When the conversation ends, Moriendor will rush to attack you, so immediately back out of the room so you won't have to face any more enemies than necessary. Moriendor is level 49 and can be nasty to kill, but once you've defeated him he'll flee to the north.


4 - Axe of Stone

This is where Moriendor fled. As soon as you enter the room he'll teleport away. But don't worry; you'll see him again. Also, don't forget to pick up the Axe of Stone before you leave.


5 - Manuscript

You'll find the manuscript on the desk in the back of the room. It implicates Gregor in the theft of the Axe of Stone.


Exits:

A. Exit back to the Dwarven Halls.
B. Ladder between levels 1 and 2. Rocks will block this exit until you have a reason to descend further (that is, after you've received a quest involving the Council of Seven).