The mercenary Guild has attacked, all doors are locked

Am I screwed for the Champion quest or is there a solution??

You need to kill all enemies, then the city will be back to normal.

As far as I can tell, I have killed all the bad guys, including all the goblins back at the fort - I actually did a "flyover" to check for enemies (red dots!) and didn't see any at all. Also checked castle again - none in there, this 2nd attack was outside only

Did you travel somewhere else, and then return to Harmondale?

Either try to wait some time after defeating all the attackers in the city and in the castle itself, or maybe stealing the tapestry from your allies' castle will remedy your situation.

Did you check the castle dungeon? I'm told that there are plenty of enemy mercenaries there.

It was the dungeon -t he hidden tunnel in 1 of the cells, and weak "Wizard Eye" - should have been able to scan them

Wizard Eye doesn't see enemies through walls in indoor areas; you have to go there in person.

I am having this experience too, total pain, but am about to swim out to the Linclon so it's not a gamebreaker.

Anyway, after reading all the posts about it I went to my dungeon ( the room with cells all the way around), just above the torture chamber.

I had just bought perception for all my characters, and found that one of the beds in the cells was glowing red ( that means perception has seen something the naked eye can't)

I clicked on the bed, it slid back and revealed a secret and small tunnel, after wiggling around a bit my characters dropped down into it and there were 6 mobs in there !!!

I killed them, and am now hoping finally, that Harmondale will reset

I think there's another secret room under the stairs in the torture chamber. If you aren't finished yet, check there too.