It's been a while, but I managed to beat the encounter at a fairly low level - maybe level 12 or 13 (after a bunch of failures). I can't remember all details anymore, so my description might be a bit vague at points - sorry. Anyway, my winning strategy was like this:
Spoiler
First I made sure I had the best gear I could buy for money (which was no longer a problem at this point). I had neglected this a bit, since the previous encounters had been fairly easy. I also bought two wands of chain lightning, which can be used by fighters.
The encounter consists of two serpent guys, a big nasty guy and a nasty caster that keeps in the background (casting death magic).
First thing to do is to get rid of the two serpent creatures FAST! I used a character to trigger the encounter and "pulled" back to the balcony. There my two tanks used their wands of chain lightning on the serpents and my mage cast damage spells on them. They died before reaching the balcony, and also before the big guy got near.
Then I focused on the big guy. I tried two things: First I used one of the "Bigsby" (grasping hand I think it's called) spells on him. That easily got through his magic resistance and slowed him down a lot. Then my tanks kept him busy while my mage did all the damage on him (some sort of "magic missile storm" spell). I got him to "almost dead" fairly easily and I think I could have won like this, but then the mage enemy cast a instant death spell on my mage. My fighters couldn't hurt the big guy at all with their weapons…. so I failed.
Second attempt was same as before on the serpents, then I cast "Banish" on the big guy which worked and instant-killed him.
Once the serpents and the big guy was gone I rushed in on the enemy mage and easily killed him with my tanks (I could almost smell his fear when he saw the big guy go down
The attempt where I won was actually over VERY quickly and left most of my party almost unhurt..