Ok, i only just starting playing, on day 6
Found a lich in the crooked crane inn at the gate way, sneaked my thief in stole the blade, but still can not kill it, no matter how i protect the char with the sword, do i have to leave it and come back and kill it later? also do i have to complete all the sections of the city before i go off and do other quests?(done 2 and abit , then thought ill go for a wander)

i think you should probably wait to kill that liche. at first liches are impossible but later on you get much better spells and stuff. before you fight him make sure everyone is protected from evil cos they always cast gate. also make sure you have a good mage that has some spells to destroy the magical shields, like breach, spell thrust, and dispel magic will get rid of some other things.