It started out good, but now I am stuck! I cleared baldurs boat, killed the leader on the top deck before he could change and gave the spell book to the crazy elf locked away, the elf wiz ditched me and I have gone up and down the Ise looking for a cave or where more Wwolves are hiding, the women asks me did you kill all the beasts and my only possible reply is NO, There is also a key to open some strange lock for a hidden door, I tried to pick pockets and no one has key, and where could a 3 month old be? And what is up with the ship just out of sight?
AAAAGGGGHHHHHHHHH!!!!! I am now going to kill everything in the village to see what happens. Wish me luck.

Okay, first of all, the wherewolf leader is the one who has the baby in his possesion you refer to late in your posts. So I think you should just let him chance, maybe it would make a difference in his inventory.
about killing all wolfz, you should also kill all wherez in the forests. and It might help to solve all sub-quests. retrieve this cloack, find some herbs for a woman, retrieve a little doll and some other. Did u also find the amulet in the chest in the flipping elfs house ?? and the Sword of Balduran ???

Also, the mysterious lock (it says that it has a magical lock, if I'm right) can only be opened, like all of these locks, by a key OR by an action like reaching an objective.
The door will be opened by a helpfull hand when you're in trouble

Ps, killing everyone might not be a bad idea. you'll see what I mean.

Solution : Just replay the WWI and just solve EVERYTHING and talk to EVERYONE and take a look at the WHOLE island. that should do it.

Well Az isn´t right I think... I just finished the island a pair of times without completeing all the sub quests. Just return to the leader who asked you to kill the beast and talk with her...