Outside (not shown) Edit
The entrance to the cave is very small. If you're not a minute race (dwarf, halfling, or gnome), then the only way to get inside is to use a shrink spell. Even Worthless Mutt is too big to get inside.
1 - Halfling Thieves Edit
The halflings are with the Thieves Underground. They'll tell you of their most recent job, how they stole some things from the Roseborough Inn, but that an ally turned them in to protect himself. Then they'll ask you to plant some evidence on the traitor (Frederik, at the Roseborough Inn bar), and turn him in to the local guard.
You'll have two options for this quest: do what the thieves ask (which requires some pickpocketing skill), or turn in the thieves instead. If you do the former you'll receive 4600 experience and 500 gold, and gain some alignment. If you do the latter you'll earn 150 gold but lose some alignment.
A. Exit to the world map.