I have completed the Castle. BTW thanks on advice! OK now I suppose to face the DRAGON right and to tell that magic word and to use some cloth on him. How exactly to do that? I tried everything and dragon keeps boiling me with his breath. Or to be more precise what should I do next after the castle????

Please help!

Next would be either the Stout Mines or BoOgre caves. Give up yelling at the dragon, it doesn't work, just run. The Stout mines are SW of the castle and the Boogre caves are NE of the castle across the little lake. I suggest you make a clean save before entering either one and keep that save seperate until you complete the area. I had a buggy problem that forced me to go back to mine in the Boogre cave, it didn't happen the second time.