Take the quest card and make your boast(s). If you're Good, you can head straight to the Arena, but if you're Evil, stock up on as many food, potions, and equipment you can before you enter, because if you're Evil, the Arena shop will refuse to trade with you.
You can go back to the Arena after you're done here in the Lost Chapters, but only if you do not kill Thunder when given a choice with the souls. You can then head to the arena for one more time.
When you're ready go to Knothole Glade. Exit Knothole Glade, take the north path to the Arena Entrance. Talk to the guard on the left and enter the Arena, this will begin the quest. After the cutscene you are in the Arena.
You can buy some Bright Plate armour here, its the only fixed shop that sells the chest piece or the gloves.
There is also a Thunder hero doll you can buy here, or you can wait until later.
You can also play Black Jack here, there isn't much point though.
Talk to some of the other fighters to kill the time until you get summoned out to fight.
When you do get summoned, you should be prepared for a long run of battles against many different opponents.
You will be summoned out there, go to the upper door on your mini-map and talk to the guard on the right.
There are several sets, each set has a number of rounds and a set reward. If you quit after a round the next round will earn you nothing, so try and stay in for all 9 rounds.
Whisper will join you in the third set; don't worry, she doesn't take any of your money. Do not rely on Whisper; she is almost completely useless. About all she's good for is to distract your enemies while you heal, and steal your experience points.
Use a bow when fighting Aracanox, because if you get too close he'll dish out a very damaging blow. The best times to shoot him are when he's facing you, and when he's charging his tail attack.
In the next round you have to make your first major story-affecting choice....
When you beat her you will be given the choice to kill Whisper, or to let her live, the choice should be obvious for your alignment.
Whatever you choose, all of Albion will literally be talking about it.
When you've made your choice, the quest will be complete.
Beating this quest earns you: