There's one quest in this town, but it involves a few different parts. Start by just exploring the town. If you go towards the southwest corner you'll find an area containing a few boulders, with five passages leading out. The two which lead towards the water have monsters. The one leading to the south has a giant spider, and the one leading to the west has a Null Bug and two Chitrachs. The Chitrachs are apparently guarding a body with a few coins and a couple minor goodies.

Once you've dealt with these go back into the room with the boulders and take the passage which leads to the northwest. You'll find a few crates, but they don't contain anything other than building supplies. There's a little alcove at the northern end of this section, which is actually the beginning of a secret passage containing a couple Giant Spiders. Other than the spiders there isn't anything in there.

Go back up to the courtyard and over to the building in the northwest corner. If you enter you'll find three empty rooms and a smith. Both the smith and the room across the hall from it have secret rooms off the side, but only the smith one has anything in it. It contains a statue and is apparently the Slith Worship area. The smith is run by Dossor, and he doesn't really sell any useful items, besides which his prices are Expensive.

Directly east of this building is the Inn. Dominique is standing by the counter. You'll need to know where she is for a later quest. McDonald is the barkeep, and he also sells some food items. His prices are Exorbitant though, so if you do decide to buy food you'd be better off dealing with Hmurr in New Cotra. This is also where you'll find Flanagan later, during the New Formello Murders quest.

Now down into the hall of the inn. The room to the North has a few items in it, but nothing I really wanted to take. The room across the hall has a guard. The next room down the hall gives you the option to rest, but you'll get sick if you do, so you should probably pass. The two remaining rooms on the other side of the hall are people's apartments. One has an Iron Buckler and the other has six coins. Now go into the one remaining room to begin the New Formello quest. Talk to the Slith at the bottom of the room. His name is Ahsoth. He'll complain about the cold and if you keep talking to him you'll eventually be given an option to say that you could try to help. He'll tell you to talk to Commander Ace.

Commander Ace is a very hard person to track down. I finally found her wandering around the courtyard near the water. Once you've located her, talk to her and tell her that you talked to Ahsoth. She'll tell you that if you can get rid of the Chitrachs she'll make sure the Sliths get more heat. The Chitrachs are on the other side of the river from New Formello, outside, in a Passageway along the Western wall. You have to fight, I believe six waves of Chitrachs. Once you've disposed of them all don't forget to go into their lair and pick up the Amber Shield.

Return to New Formello and talk to Commander Ace. Once you've talked to her, go talk to Ahsoth again and tell him that you've completed his quest. Now you can talk to the second Slith. This is Hsska, and he's an NPC. If you have a blank spot in your party you can choose to take him with you. There's a good description of all the game NPC's on Drakefyre's site, which you can access through the links. That completes New Formello for now, though you'll be back later.