SPOILER
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It's in the suhaguin city (bad spelling),
You get there by finishing spellhold and then accepting saemon Havarian's deal to sail back with his ship.
After that, you;ll find your way into the city no matter what you do,
Once in the city, try finding an open round place in the map, it' somehwere in the middle (i think) and a little to the north. It's a cirkel-floor and above are hanging jaws ... Here you will be ambushed by some rebels and a priestess,
Kill her and you can get the cloak off her body
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