Arrow of Extrication
Fencing Requirement: 700 Gold
Your next meeting with the Gray Fox will be in Chorrol, at Malintus Ancrus' house there. The Gray Fox needs you to find the Arrow of Extrication, which is in the possession of Bravil's court wizard, one Fathis Aren. You can kill Fathis if need be, so long as he doesn't die in the castle itself. Gray Fox seems to be playing hard and fast with the rules here....
Tip: If you want to access some semi-hidden sections of the upcoming areas, bring along either a water-breathing amulet or some potions with a waterbreathing effect.
Head to Bravil and interrogate a beggar. After getting your Jack Bauer on, they'll let slip that Fathis has a tower outside the city walls, where he keeps his most valuable possessions. It's locked up tight, though, and only Fathis has the key. Apparently there's some kind of secret passage leading from the castle to the tower, though. Time to root around a bit.
Searching The Tower Enter the castle and start following the red dots on your compass. Head into Lord's Manor North Wing and start rooting around. (Note that you'll probably need to do this during the day to avoid getting caught by the guards.) You'll see a green arrow on your map, indicating your destination, but you may want to explore the Count's rooms to the southeast, where you can find a jewelry box, as well as a book on the shelves that'll increase your Marksman skills.
After entering and searching Fathis' room, you'll note that there's not much loot of a magical nature in the area. Time to start looking for that secret passage...if you examine the rest of the room closely, you'll note that one of the arches on the north side has a Moveable Pillar outside of it. Activate it to reveal a hidden door leading to the Wizard's Grotto.
El Grotto Flip yourself back into action mode when you enter this area, as there are a few monsters roaming the halls, including perhaps a Dremora. Apparently Fathis is a conjurer, or at least has conjurers on staff, and indeed you'll eventually run into one of them on the northern side of this little dungeon area, near a locked door. Nearby, you'll come across a deep, deeeep pool of water. There's a dead end on the far side of it, leaving you nowhere to go but down. If you poked around in the little area the conjurer was in, you probably found a Potion of the Sea; now would be a good time to suck it down and get some waterbreathing.
Now, there are actually two exits from the pool of water here. The first lies along a small passageway on the north side of the pool, twenty or thirty feet under the water level; you can check your map to see precisely where this is in relation to the cavern's dimensions, then just head down the water and check the sides of the pool to find the passageway. This is the correct way to move on if you're looking for Fathis' tower entrance. If you head down alllll the way to the bottom of the pool, though, you'll run across a Giant Slaughterfish with some amusingly weird stuff on its corpse, as well as an exit that leads out to the middle of Niben Bay, out in the middle of the water. There's nothing to find when you exit into the bay, though, besides a small chest. Still, it's interesting!
Anyway, when you find the northern passage underneath the pool, follow it along and start exploring the eastern section of the Wizard's Grotto. You'll eventually come to the door to the Wizard's Lair, which you can rampage through to reach Fathis Aren's Tower.
Aren's Tower When you reach Aren's tower, you have two options: kill him, or let him live. No matter when you enter the tower, Fathis is likely to be around and waiting with a gaggle of Daedra to discourage interlopers from entering the tower. There'll probably also be a conjurer nearby, as well, so you're going to have a bunch of free-standing Daedra to deal with, two wizards, and the conjured creatures of those two wizards. Fun.
If you're playing a thief character, then your best bet is to just dash up to the second-highest level of the tower, find Aren's chest, grab the Key-Shaped Arrowhead and Aren's Tower Key, and then drop back down to the first floor to exit the Tower. If you want to kill off Aren and his helper, then you'll probably be best off heading to the very top floor of the tower and jump across to the inaccessible ledge; this will prevent the conjurers from reaching you, and will also block off any Daedroth or Clannfears, if you're of a high enough level to make them appear. From the ledge, you can poison your arrow shots and attempt to hit both Aren and his helper, or just kill them normally.
Regardless of your choice, you need to get the key-shaped arrowhead from Aren's chest before you leave. You can pick the lock if you don't want to fight him, or just kill him and grab the key off of his body.
Returning the Arrowhead to Gray Fox will net you your 500 gold reward, as well as access to the best fence in the Fighters Guild, Fathis Ules. Note that Fathis is usually bugged and won't give you the option to buy or sell. PC users can download mods to unlock his bartering abilities, but 360 users will likely have to head back to the fence in Bravil for their bartering needs.