Treasure Island of Doom!

Location Unlocked: This quest unlocks Lion's Head Isle.

Treasure Island of Doom! is a quest in Fable II that becomes available when the Hero first reaches Bloodstone.

Walkthrough

A man named Salty Jack who can be found in the Bloodstone tavern gives you this quest after you get him a beer. He then tells you the story of Captain Dread, a feared Pirate, whose ghost haunts a cave called "The Sinkhole", upon entering you are confronted with a hole which is 500ft (this unlocks "The Cliff Diver" Achievement). During the quest, you must fight his crew of ghosts, these are easy as they have the damage take of a Bandit. After fighting all of the ghosts you must go up a staircase to find a room. Search the room. On the right side of the bed is an endtable. Search this endtable and you will find Captain Dread's Key. This unlocks the chests in the same room that has a lever in it. You enter a port which holds his infamous ship the "Marianne", you must use the lever on a switch which requires a lever to be turned on, this rises the water in the port, making it easy for you to enter the Marianne. Now its time for a boss fight; Captain Dread will summon more of his men. Once they are defeated, he will fight the hero himself. He is a somewhat strong opponent who uses the vortex spell against you, but he can still be defeated rather easily. Once he's defeated you'll receive Captain Dread's Map.

Lion's Head Isle

Upon Dread's defeat you have to set sail on the Marianne, this loads up an island called Lion's Head Isle. (An obvious reference to Lionhead Studios, the developer of the game. Also the smaller island within is shaped like Lionhead's logo.) On arrival you are greeted with a broken ship and a score box on the bottom right corner reading "Dread's Treasure". There are 10 treasures around the island, most of them being chests. Each treasure is a gold bag with 1500 gold inside. Find them all and you can return to Bloodstone.

A glitch with the treasure is that if you get all of the treasure chests, but not the underwater or the buried ones, you can re-load to get the chests. You can find Salty Jack just before the cavern you entered to begin the quest to complete it.

There is a gargoyle and a silver key on this island.

The silver key can be found by jumping off the ledge (to the right) as you enter the wooden cave.

Treasure Locations

There are 10 chests of treasure on the island needed to complete this quest. Their locations are as follows.

Inside the back half of the broken ship on the beach
On a small beach on the edge of the isle (swim around the rock wall in the water. Its to the left when looking at the ocean)
On the deck of the front half of the broken ship (you need to jump down from a ledge on to it)
As you face the beach, see the path to the interior lake on your right, going up the hill. On a ledge to the left of the diving spot above the island/lake (you need to jump down to a ledge before diving to the lake.)
Buried on the lake island
Sunken in the lake
Behind the tree on the lake island
Behind a waterfall
In the cave above the lake behind some wooden planks
On the ledge below the cave when returning to the beach from the lake

Changes Afterwards

After you complete "Treasure Island of Doom!" the jump spot in the entrance to the Sinkhole is no longer available, and is filled by water, but you can use this to swim to the other side to smash down the wooden barrier and collect a Silver Key

Note: If you fast travel back to Bloodstone instead of taking the ship, then you need to run over near the Sinkhole entrance to meet with Salty Jack to finish the quest. The glowing trail may not be present.

Logbook Information

Description:
An old drunk has seen the ghost of a pirate.

Conclusion:
Captain Dread's treasure is yours! But what if it's cursed? (Don't worry. It isn't.)

Trivia

Lion's Head Isle is a reference to Lionhead Studios, the developer of the game.
In the middle of the island, the ground is shaped like the Lionhead logo.
The name of the quest is a reference to the famous Robert Louis Stevenson book Treasure Island, which is famous for its pirate treasure-themed plot.
Above the Captain's Desk is a map of J.R.R. Tolkien's Middle Earth from The Lord Of The Rings series.
If you go to the island with no dog, all dig spots are transformed into chests.
This quest may also be a reference to the film The Goonies.