It's in the chest just before the exit in my unpatched version. Patch 2 may have broken a few things as well as fixing others. After reading Peavey's mind while he's in jail, his treasure chest materializes behind the "Village" waypoint shrine, but it's empty. This patch was supposed to fix empty containers. However, I did notice a big improvement on drop rates and quality of the items that can be found in containers. I found some green items, magical and/or legendary, coming out of even the barrels.
In your case, I'd first double-check to make sure you're using the correct save (the one after you read Zagon's mind). To do that, go to your chat log and see if he mentions the helm.
