|The hobgoblin town in the Southern Mountains|
The Southern Mountains are an area near the Redmountain Hills where Xykon kept a back-up fortress. The valley had been abandoned thirty years ago previously and was then settled by Hobgoblins. The fortress itself had been sanctified by the forces of Good (who were subsequently zombified) and is only reachable via the Perilous Path of Crushing Doom.
Xykon, Redcloak and The Monster In The Darkness relocated to the valley after the destruction of The Dungeon of Dorukan, where Xykon decided to enlist the hobgoblins as flunkies. Redcloak began the rituals to become an honorary hobgoblin so he could ultimately become their leader, but to speed things up he instead just killed the Hobgoblin he presumed was the leader. The actual leader didn't contradict him.