The environmental effect Aura of the Bloodstone is particularly useful as a heal. Killing an enemy results in healing all nearby creatures. As you venture closer to the Bloodstone, the amount you are healed by increases. You can use this to your advantage.
From the starting point, head left, then right, then left again (not the path on the map), and you should see the first sentry directly ahead, walking away from you. After the Stormcloud Incubi at the bottom of the stairs, there are no more enemies on that path, so run the sentry down. Turn back the way you came and take the first right, heading toward the quest marker and the portal to the next level.
The incubi will drop down from the ceiling, then retreat as soon as any one of them is killed. If the group is coordinated enough, it is possible to run past the spawn point before they return.
This level is populated mostly by skelk, with a few incubi groups that swoop down in the central cavern (unlike those on level 1, these will not retreat). Stay close to the right (south) wall to avoid the worst fights. At the doorway of the final chamber you will be rushed by a large group of Skeletal Hounds. Inside the chamber there are neutral undead scattered around the room, with the Inscribed Sentry and two more hounds in the middle. Approaching the sentry will cause the undead to become hostile in stages - one undead at each pillar will activate at a time and move to the center of the room. Killing the sentry will cause all the undead, except the hounds, to disappear, so it is best to pull the sentry back towards the entrance and kill it there. Enter the portal after Gadd activates the stone.
Fight through the skelk along the path to the Bloodstone. The Inscribed Guardian will be surrounded by Enchanted Shields that will attempt to body block melee attackers, and there are Enchanted Scythes that will become hostile when you aggro the guardian. Either retreat and deal with the scythes first, or focus fire on the guardian to kill it quickly. A cutscene will play, and the party will be returned to Gadd's Encampment.
About the same tactics as above still work. If you're reckless, you could take a few deaths from incubi, as they can spike damage pretty well. You could also take a few deaths from the bosses on the second and third floors, but that's readily avoidable by careful pulling.
"I want this done well. I want this done right. And I want this done fast."
Gadd:
"I don't want any screwups. I don't want any back talk."
Gadd:
"I'm looking at you Vekk. You hear me?"
Vekk:
"Yeah, yeah."
Gadd:
"Questions? No? Let's go."
Vekk:
"He's everything I said, and less."
Livia:
"He's not that bad. He's very smart."
Vekk:
"And doesn't let a minute go by without reminding you of it."
<party leader>:
"Gadd is pretty abrasive. How did you end up working for him?"
Livia:
"In the wake of the White Mantle, my home, Kryta, is wracked by civil war."
Livia:
"Factions and subfactions are destroying our nation."
Livia:
"We are seeking new ways, new magics, new allies in order to tip the balance and finally bring peace."
<party leader>:
"And this cranky old Asura is a potential ally?"
Vekk:
"Hah! All he cares about is his reputation. Tell me, how many of your people has he injured with his experiments? How many have quit?"
Livia:
"A few. But I've learned a great deal about Necromancy in the short time I've known him. It's worth dealing with his temper and his demands."
<party leader>:
"A small sacrifice for a greater good?"
Livia:
"We all make sacrifices. I would sacrifice ten times over if it would protect my people."
Defeat Inscribed Sentries and decipher their inscriptions to open passageways:
Gadd:
"There are more inscribed creatures ahead. You there, the tall one! Track them down and remove their inscriptions. I'll need those before we can delve deeper and locate the Bloodstone."
Gadd:
"I still sense the creature. It is to the south now. Shall I show you which way is SOUTH, bookah?"
Gadd:
"You there. Shining Blade girl. Extract this inscription."
Livia:
"Of course, Gadd. But remember, you can't do this alone."
Gadd:
"Give me just a moment. This is so far beyond you it would make your head spin."
Gadd:
"There's an inscribed creature to the southeast again. If you know how to read a compass, look at the S and E, and walk between them. That's SOUTHEAST."
Gadd:
"We're close to the creature now. This one isn't moving much. Perhaps it's guarding something... you go in first."
Livia:
"These inscriptions are fascinating. I wonder what created them."
Gadd:
"That doesn't matter, Necromancer. All that matters is that I will figure them out!"
Gadd:
"These inscriptions are... interesting. No wonder no one else has gotten in here. They didn't have me."
Gadd:
"The inscribed power emanating from this room is... immense. We must mind our steps. Well, you should, as you will be walking in front of me. After you."
Destroy the Inscribed Guardian protecting the Bloodstone:
Gadd:
"Defeating this guardian will allow me to harness the Bloodstone's full power!"
Hex and condition removal skills are quite useful during this quest, especially against the weaver's Snaring Web, which inflicts both a hex and a condition.