I love old style rpg but this is so confusing. Maybe it's because of the amount of text and information it costantly throw at you and the lack of a "good" journal, maybe I grew soft, I don't know.
It just took me 4 hours to find the knight guy that you are supposed to arrest. I mean it kinda come as a logic conclusion that the knight would be in the knight chapel building so I just went around talking nonstop to everyone in town and everytime I got something new I just talked to everyone from the start hoping to be able to open the door of that bulding.
Then I just went exploring for a while and I noticed that monsters are incredibly powerful.
So I got a dog and started farming. Kinda felt like playing a jrpg rather than a rpg ala torment or arcanum but ok, nevermind. Finally I found the knight and of course just like I suspected he really seems innocent, too bad I already told the inquisitor I would arrest him. I guess I will try to prove his innocence anyway now that I have even another companion but I really don't know what to do.

TL;DR: talked to everyone in the first town, I have 2 companions, I'm thief lvl 8, what am I supposed to do now?
I guess I should find the missing people but I have no idea where to start. Also isn't my character supposed to be able to have his own village? I already cleared asherwhatever from every enemy (and found the runaway thief that I think is innocent), what now?
I'm short on cash after upgrading and restocking with potions so I feel like either managing to make progress into the game or just quit it.

quit

Yeah, you get the village when you get promoted. Also, thief is easy to train at graveyards, zombies net a lot of EXP and can be easily outrun.

The difference between this game and most modern rpg's is that you aren't spoon fed the next objective or where you need to go. All I can suggest is to save often (with periodic progress saves in case you make a decision you regret), talk to everyone in new locations or when new topics are revealed, and explore the areas available to you on the world map.

btw You brought up something that I apparently missed. I play a thief too and never found any runaway thief. Now I'm in Act 2 and I heard a rumor about him. I'm surprised I missed him because I'm usually good about fully exploring/mapping out any new areas I go to. Go figure. Always a mystery. Which isn't a bad thing, imo.

*edit* Err.. Different thief I had forgotten about him. Yeah found him in the cottage.

I grinded a lot already it's pretty much all I did. Isn't lvl 8 enough to go find this Linda or the soldier... Julius I think? That's what I do already but some location are clearly for high level (the trent of the dead tree can pretty much kill me and my companions in 1 shot and it's pretty much the same with the big ogre of the dragon rock). Seems to me that rather than talking and exploring I just need to grind...

You must not have explored the graveyard fully then as the soldier is in that area. ;)

Less complaining and more exploring!

For the record I never really had to stop and grind (I'm a thief as well). Did you stick with ranged/bow or did you try going melee? It might be a bit tough in the long run to be a melee thief as they can only go Rank 2 in the melee skill. Thieves in this game are more like rangers. I've never really had a problem with money either. It's good to get your perception and thieving skills up if you can spare the skill points because then you find secret stashes and can disarm traps / pick locks. Don't bother with the identification skill and instead get the spell *sixth sense which works on everything regardless of skill and does every item in your inventory all at once.

A lot of this has already been covered in other threads. Take a look around. Or if that's too much of a bother maybe you should just give up? :P

I'm ranged too but I see that many times my arrows just don't deal any damage.
Do you mean the area in the crypt? I costantly have to use a huge amount of potions for my companions in that area.
Between potions and arrows my golds run dry quickly. Between that and stamina to recover with potions it's not like the game really push you to explore much.

My bad.. I'm getting cemeteries confused in my head. It's the village cemetery in the north that I'm thinking of. At any rate if something is too difficult try a different area. If you're not already playing easy difficulty then switch to it. I find it hard to believe you can't keep money in your pocket as a thief. Sure pots and arrows cost money but it hasn't stopped me from making thousands.

It seems you're arguing for your own limitations. Again, a lot of this has been covered in other threads. Read and learn. Maybe you're doing something wrong.