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As far as the evil tanner goes, it is not a red herring, and the letter confuses more than illuminates, but he is up in Umar Hills with the other merchants. I never completed that quest because I play *good* characters, and you have to do some things that are not so good.
The teddy bear is in the Copper Coronet upstairs, first door to the left, then down the hall and last on the left. There is a little man who you can kill and get the bear back. Be sure when you go back to the Graveyard that you go at night, and pause so you can see the blue circles to find him. He is a tricky little hider sometimes.
Hope this helps.
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I drank what?
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