I am at the point in this side-quest where I encounter the Lich. I tried to fight him and he easily tore me a new one. Do I have to fight him or is there an alternative?
Here's something you can do:
When the fight beings, run up and talk to the Wizard. While in the dialogue, your companions will continue to attack the Lich, and do damage to him, but you nor your companions will take damage. Stay in the dialogue until you hear all battle end.
Otherwise... idk? What class are you playing? I was a Wizard so was well buffed and the battle wasn't too tough.
My character is a Drow Wizard 6, Fighter 2 and I'm working towards a variation of the Sparkling duelist build. Should I wait until I'm higher level then or can I take him on now?
Never mind about the problem, I did what you said about talking to the wizard and my companions slaughtered him. The only problem now is that I feel like a cheater, but that quickly fades.
Meh, just gotta do what you need to do to move on. You can redeem yourself by clearing some of the other more difficult sidequest battles without workarounds.