After conversation with Agarth in House of Ballads you'll be sent to The Hollowlands where you have to meet a man named Octienne. You'll find him in Overlook Camp, to the west M3(8). Talk to him and you'll get more information about Hugues. The great inventor probably hides in the cavern known as Saltwell Caverns M3(7).
Map of Saltwell Caverns
1 - Corpse of the assistant
2 - Key to chest with supplies
3 - Chest with supplies
4 - Fomorous Hugues
After getting inside, examine a corpse lying nearby and pick up a key and a note. A moment later you'll be attacked by a group of undead.
Once monsters are dead, continue with a corridor to the north.
It will lead you to the laboratory, where you'll find a scholar you're looking for. Talk to him and then defend him against Assassins.
Once the last of them is dead, you can talk to Hugues again and complete the quest.