I think I understand what's happening here. The Twilight's Hammer fears that the ancients may someday rise up to oppose them. They'll do anything to stop the return of Goldrinn.
This "Lycanthoth" is a twisted version of our beloved wolf god, summoned by the Twilight's Hammer to replace him.
Bah! It is but a shadow of Goldrinn's power. <Name>, kill this beast so that the true ancient can return. Take this incense and burn it in the Maw of Lycanthoth east of here. Slay that beast and free Goldrinn!
Takrik Ragehowl
The actions of these feral dogs are beginning to make sense. The Twilight's Hammer fears the power of the ancients. They do not want Lo'Gosh to return.
So they've summoned their own wolf god - a perversion of what once was. "Lycanthoth," the corruptor.
<name>, Lycanthoth is but a shadow of Lo'Gosh's power, but the beast must be destroyed so that the true ancient can return. Take this incense, and burn it in the maw of Lycanthoth east of here. Slay the monstrosity and free the spirit of Lo'Gosh!
Your bravery is an inspiration to others, <class>. Tell me your name.
Completion
Ian Duran
You were brave to face down Lycanthoth, <name>. Like myself, he was a primal force of nature... but his origins were from a darker place.
Whether through desperation or intent, those who birthed that beast reached deep into the blackness, channeling powers never intended for this world.
Takrik Ragehowl
You were brave to face down Lycanthoth, <name>. Like myself, he was a primal force of nature... but his origins were from a darker place.
Those who birthed that beast reached deep into the blackness, channeling powers never intended for this world.
Come, <class>. Climb onto my back, and let us show these beasts the true face of ferocity!
Notes
Head east along the northern portion of the valley and enter the cave. Enter the cave at at [32.4, 37.3]
to find Lycanthoth's Altar. Using the incense will summon Lycanthoth. His first move is to cast the Miasama of Terror—A veil of terror surrounds the gruesome visage of Lycanthoth.
Lycanthoth whispers: Log'loth og shandai, <race>. Only death is eternal. You will be undone.
Lycanthoth says: Fate subjugates faith, mortal. Your prayers are meaningless here.
On complete... the camera moves to see through Goldrinn's eyes as he frees the captives, kills the vandals, then moves to his statue up on the rise.