Interesting thing on that Hydra: when I engaged him in daylight, as soon as he fell to the ground, before he "decomposed", the game froze; every time; no exceptions, and I tried like ten times, too.
However, engaging him at night he died and the game continued normally for me; that has worked every time I played through the game -- I now make it a point, when I'm in that area, whether I'm ready for the Isle of Sands or not, to swim over and kill him whenever it happens to be dark outside...
Wierd, I know, but hey it works for me, it might work for you.
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