First, I'd like to point all new readers to the post of 4/9/2001 at the bottom of all this. The post by Annyhillus is the most important info regarding this quest. Eighty-five percent of the rest is crap, and some of it is complete crap. Hey, mine is just so much speculation, and might be the same--I know that, so save your flames!
Second, I think this quest may not be complete and in game yet. It is obviously VERY difficult, and if complete, is one of the majority (per Verant) of quests that is complete but unsolved. I believe the book of the lost is to be found in Takish-Hiz, not Kunark, as that is the lost city of the Elddar. A lost contient of Iksar holding the secret just doesnt' make sense, although I could see it due to the outpost at FV. (Not sure where/when it fits in Elvish history.) But I believe this book was lost with the abandonment of the Elven city, when the land changed, leaving the Deserts of Ro/Oasis of Marr where once stood the mighty elven forests.
Third, my reason for assuming it is incomplete also has to do with an error in several postings I see below, even Annyhillus'. It is hinted or stated outright that Befallen is Takish-Hiz, or that the city is "one of the ruins" in Oasis, and the book has yet to be found there. Nope. I'm not clear on Befallen's exact origins but think about it people, does it resemble a city in the least? Hardly. And the ruins don't look like a city either, nor does the island. A temple, defensive outposts, and another temple yes. A city? Hah.
Do this. Go through the tunnel from EC to Nro. Cast invis, and then start running south along the wall. Zone to Oasis. Keep going, right down the orc highway. Pass the orc camp/plinths and then go over the next hill. Look right. You'll know it when you see it.... That, people, is Takish-Hiz. In the Developer's Corner a while back, Verant quite deliberately "smiled and said nothing" when someone asked them outright if it was. Why Verant is working on the Stoneburnt Mountains in an out-of-the-way, hole-in-the-wall (literally!) spot off the Warrens, when they could be adding an easily reached dungeon/city that every (even semi-roleplaying) elf would kill to get to, I don't know. Maybe they want to do it justice so they're keeping it under wraps until it's ready, presumably after Luclin. I don't know. But I suspect the Book of the Lost will be found here, possibly one of the others too.
And when they announce the opening of that zone (which I hope they do via an epic-style GM event) I will be camping in Oasis the night before the patch goes in on Luclin, and you are welcome to join me. My elvish brethren, our ancient home awaits us!
Elizor Feystorm
35th Enchanter
Luclin