Somehow, I missed the entire section of the Dragon's Eye with the Telonite priests -- I realized my mistake while in the Severed Hand and went back, but when I did, the missing priestess was gone and so were all the villagers. Did I just miss out on a minor quest and lose some experience, or did I mess up the progression of the game? I've been allowed to continue on to the Severed Hand, so I assume I'm okay, but I want to be sure.

It's a minor quest. The only thing major in Dragon's Eye is the Heartstone Gem... so since you are at (or probably passed) this now, you are fine

Thanks, that's a relief -- I was afraid I was gonna have to restart there for a second! And let me just add that the Bladed Skeletons are some of the most frightening things I've ever seen -- first time I saw one freaked me out.