Scratch and Sniff

Just keep sniffing around until you get the line "I smell something briny over here..." That is the correct dig, it an swamp element named Bogg. Kill it for the key.

don't know if the spot is the same for everyone buy mine was the far back right of the room (to the right of the backpack)

For me this quest was slightly different. Boggs was in the back left corner but I had explored a bit and killed two randoms. Also, he was standing in a fog that put me to sleep and the sparkle for the loot was inside that fog. It took me a try to figure out his remains were against the wall. Short story, he could be anywhere, don't stand in fog :)

My first instance bugged out. Just leave the dig and then click continue dig when you are back in the overworld. The key still didn't drop but I was able to kill the rare and loot the chest.