Lily told the group that she has been essentially working with the Hobgoblins and 2 mysterious Halfling brothers, under threat of wiping out the town and killing her specifically. She also hinted that she had possibly been raped. She explains that the Halflings have been abducting townsfolk for some sort of experiment. She has been used to assist them in capturing people, as well as pushing the blame onto the visiting Halfling circus family. To do this, they provided her with a Magic Journal that would allow them to see what she wrote, thus allowing for communication.
The party let her off easy not sensing anything particularly suspicious about her, though they couldn’t be sure, and hatched a plan. Using the Magic Journal, they laid a trap that night saying Lily will lure the captain of the town militia, near Father Edward’s home.
That night, the party lay in ambush around the not-so-secret entrance into the city at both ends of the tunnel and had Jackson disguise himself to look like the captain. Later that evening, around midnight, a Halfling with a strange head brace (covering one eye) and several Bugbears arrived. Having sent his Bugbear guards ahead, half the party ambushed the Halfling and the other half handled the Bugbears, leading to an easy victory.
Sparring the Halfling, they gathered much information from him. He pleaded for the party not to touch his head brace. When pressed, they determined it was actually a modified Slave Collar, once popular in Illeau during the Eladrin enslavement. They learned that he had actually been subjugated, along with the Hobgoblins by his brother and a mysterious woman simply called the “Lady of Masks” who provided him with a strange mask and helped him overpower the Hobgoblins North of the city. He also told them he had no knowledge of what experiments were being performed, just that he was to abduct whomever he could.
After a discussion with regards to whether to spare him, they gave him over to the (real) captain of the militia and made their way to the North, towards the forest which made up the Hobgoblin’s home.