This is a fairly simple and straightforward level, with only three things of real note. You start in a holding area with two pens, one empty, one with a wolf, and a few goblins. Kill the goblins and the wolf, and then go into the empty pen. On the back well is an entrance to a secret tunnel. At the end is a chest containing a healing potion and a curing potion. Now go out into the Wolf Pit itself and kill the goblin and wolves that are there.
When you get to the first branch in the tunnel you should go to the right, and follow that passage through. There aren't really any branches in the tunnel. When you get to the first open area, with the pink wall go into the little alcove and search the wall to the north for a secret passage. There's a body behind a mossy boulder, which you can't get past yet, but you want to take note of the location, because the body has a Pants of Power and a Spidersilk Tunic on it.
Now go back out and head north, killing the wolves and the one worg in this corner. There isn't much in the open area, but again, head into the short tunnel at the top, and you'll find a secret passage. At the end of the passage is a set of stairs leading up. Go up and look in the chest. You'll find a small crystal statue, which you want to take with you.
Back down the stairs and out of the secret passage. You want to go back to the first branch and head towards the southern corner now.
You can pick up a few minor goodies in the room in the south, and you want to take note of the sword that's behind some stalactites. You need Move Mountains Lv. 2 or a Stoneshatter crystal to get to it, but that's a blessed short sword.
Leave the room at the top. Going left leads to a dead end, and going right leads you up to a small room with a few bandits in it. Kill them and then pick the lock on the door to go out into the pen. Kill the wolves and you can get six coins and some dried meat. Go back into the room where the bandits were and into the last passage. This leads up to the Bandit Lair.