Are you down at the town or still on top of the hill? If you're at the town, there may be some corpses still walking around. Look around for them. Also, move towards the... blacksmithy, I think? There's a fog-like thingy that you can head towards. I'm not sure whether it's the former or latter that triggers the next part of the quest, so try both.
lol i'm there right now fighting them and wondering if there's any end to them. i'm worrying that this is going to be one of those parts that you're supposed to lose as part of the story, and you just waste health potions and stuff if you try. but, sure enough, if i die i get game over, so i'm assuming we just have to hold out as long as possible till something happens... hopefully someone else knows
^ er, I tried to answer the question, let me clarify. You're supposed to survive. Use ranged attacks, draw enemy in. Don't charge everything in your sight. Micromanage this battle sequence. It's supposed to be ahh-life-threatening.
there should be a cut scene at some point , after the mobs on the hill thin out and slow to a trickle, guy runs up informs you they are in the village, go down the hill to the campfire they will all bumb rush the troops around there.