I think people are a bit confused here, including the original poster. I just replayed that part, and here's how it goes:
You run down into the Volcano with the Inquisitor and all his men. The big door is locked. The Inquisitor will tell you to go north to look for a way to open the door. Progression:
1. You go north. Fight a few War Something (big insects with wings).
2. Climb up a small cave.
3. Turn into a small thingy and run through a tiny tunnel (transform spell).
4. Fight some ghouls.
5. Fight a Lizardman and a Lizard Warrior
6. Fall through a trap door where you fight 2x Bormak or whatever they're called. Small bull-like creatures.
7. Fight a Lizard Warrior + a Watchman.
8. In the same room, there's a big wheel. Turn the wheel. You are now done in the north part of the tunnel.
The south part goes like this:
1. Enter using a levitation spell. Rufus is dead on the floor.
2. Fight a bunch of lizards - 2x Lizard Warrior, 1x Lizard Priest, 1x Watchman.
3. Loot the Watchman for some stuff, including a Bust. Pull the switch in the room he was in so you can pass the fire thing.
4. Pass the first fire thing, but not the second.
5. Break down the wall between the two fire traps.
6. Kill the lizardman inside.
7. Fight some more, 1x Warrior, 1x Watchman. Loot the Watchman for the 2nd Bust.
8. You now have all you need to progress to the wheel and turn it.
Basically, I think you're both talking about the south section. You're supposed to go north at first. In any case, there are 2x Watchmans in the south, one where you first enter, and one where there are two altars. They have one Bust each.