You explore the town, talking to people trying to get a grasp of what's going on. The main suspect is a Khajiit that arrived in town 3 months before this all started happening. They have him trapped inside his house. You go to question him and with enough speechcraft you can get him to confess the truth or you can accuse him of being a murderer and fight him. Either way you learn through him or a note he has on him that he is a smuggler that deals in Skooma ingedients namely refined moonsugar. Apparently the town guard, small as it may be was onto him, one of the guardsmen was really applying pressure to him. He hid the refined moon sugar in a dug out cave under the house he rented.
The guardsmen was the first to be murdered so he was waiting for a chance to reclaim his goods and leave. You enter the trap door in his shack and proceed down a short path only to find a few chests packed full of refined moonsugar, now under a few feet of water. You claim the refined moonsugar and with the letter of confession in hand you leave the house headed toward the guard. When you leave the small shack though the town is in chaos, people killing one another, buildings on fire, people seizing on the ground. You're forced to kill a few crazed citizens on the way to the guard tower.
You soon put two and two together and warn the guard that the refined moonsugar has contaminated the water in the well and the whole town is overdosing causing mass hallucination and paranoia. By the time the drugged villagers are detained and the well closed over half of the village has been killed or died and another fourth are recovering from the effects.
Sometimes not everything in a fantasy game has to be attributed to the magical. Sometimes it's error of the denizens of the world and have perfectly reasonable explanations.
I thought it was an interesting idea for not every quest to revolve so much in the fantasy realm. Thoughts and ideas on this?