That party is a VERY tough one for an enemy if you try to face them in the beginning. I slunk away with my tail betwen my legs and vowed revenge later. Of course we did return for that rematch later on.
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The chests are pickable, but at a fairly high level lockpicking skill. About 110-120 is needed. It is most satisfying to backstab that runt of a foul mouthed dwarf, and see him explode into dogfood. Pooky the familiar was the most dangerous opponent, surprisingly, and you must take him out with extreme prejudice at the beginning! Laying traps is very useful, as is poisoning the mage to disrupt his spellcasting.