I went through the outside area with all the bandit guys, past a barrier he fled through down some stairs, down into tunnels with crystals that spawned ghosts (where you have to break the crystals to stop them spawning), into a room in which you have to stand in a magic circle that spawns ghosts that kill him while you kill his summoned monsters. They killed him. I then took his magic shield, looted his rooms in the back (which had two hellhounds), and then went through more barriers to find an eyebeast up on a next level that wants to be left alone. I then tracked all the way back to Dranlon, but no luck.
Then I went all the way back, and in the outside area all the bandit guys were still dead. However, he showed up again and said "Ah, blah blah..." and ran back downstairs into the tunnels. I followed him down (again) but everything downstairs is still dead, including him.