Drywhisker Gorge is a gorge cutting through the mountains in the eastern section the Arathi Highlands, northeast of Hammerfall. At the end of the gorge lies a cave, the only known source of [Lesser Bloodstone Ore]. It is currently inhabited by the Drywhisker kobolds. Deep within the cave, a mysterious stone shard can be found in which a piece of the essence of Princess Myzrael was trapped. Some players feel that the location of the case is to the south and east of Hammerfall. You run into kobolds to the south and east, but the cave is east and slightly north of Hammerfall. Obtaining the motes, as per the quest, can be soloed, but taking them to the shard inside the cave really requires a group. Kobolds are levels 35-38.
The cave entrance can be found at [82, 37]. It appears to be due east of Hammerfall on the map.