Laneel can be found in The Red Axe's room in the Keldagrim palace, in a meeting with Hreidmar. After The Giant Dwarf is completed, he disappears. Likewise, two gnome travellers can be found in the King's Axe Inn, and also disappear after the quest.
During Forgettable Tale..., it is revealed that Laneel and his gnome companions are actually from Arposandra, the city founded by the mage Glouphrie. He was sent to see that Hreidmar, The Red Axe director, was making progress in the production of chaos dwarves. Although details are foggy, it would seem Arposandra wants to use chaos dwarves in their growing army. The player's mind is erased before the quest ends, leaving them with no memory of Hreidmar's true plans.
Despite the ambassador's disappearance, his presence is felt through the rest of the Dwarf quest series. As the series progresses, it is revealed that the Arposandra gnomes have been supplying the Red Axe with technology as well as having kidnapped numerous ogres from the Feldip Hills to use in experiments. A notable example is Grunsh, an ogre shaman who erases the player's memory. Other ogres have been converted into chaos dwogres by the Red Axe to use in their army.