Upon first entering the Inn of Blades, but before going through the gates make your way around to the back to kill a bear who's lurking there.
Head through the gates into the Inn itself. There is a building to the south consisting of two rooms. The eastern room is a kitchen, and the western one is a storeroom. Unfortunately the storeroom is guarded.
In the northwest corner is a pen containing some chickens.
Now go into the Inn itself. Sitting at the bar is a small man named Oralse. He'll give you some information on the Isle of Bigail, and tell you how you can get there. Once you've ended the roach plague return and talk to him for a reputation point. Thanks to Alex and Drakefyre for telling me about the point and how to get it.
Standing near one of the tables is a man in the robes of an apprentice mage. This is Arion. He'll give you a quest to recover some metal lumps for him, and he also sells basic mage spells, meaning the spells that you start with. Once you've recovered the lumps he'll teach you Slow Lv.3, and he'll leave a spellbook containing the spell in the northern bedchamber of the Inn.
Standing behind the bar is Claw Hardblade, the Innkeeper. He's kind of interesting to talk to.
The western chamber of the inn has a healing potion and some spiritual herbs in a dresser that you can steal if you're so inclined.
That about covers the Inn of Blades.
