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Welcome to the board, Mizilus!!!
You need helmets AND breathers for the underwater city (get them made at the same place - just gather more shells).
Yes - the werebeast appears after you find the burnt body in the forest on the way to the Stout Mines. The beast will show up (generally) to the northwest of the burnt body.
Don't recall having to do anything to have the spells on a staff or the like work other than to equip is and use it in battle. control - left click is how you target something which initially isn't targeted when you are playing in safe mode.
Hope that helps!
Wyv
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