Go to the Broken Valley tavern, the third floor. The two doors up there require Lockpick level 2. Open them and you'll find a book. Read it, solve the riddles, and follow the trail to find the other books and the skill book.
The secret passage is the one between the chapel and the jail, with another exit near Jackson's Farm. In one spot, there appears to be a passage which goes a little way, but ends at a solid wall. Look around for a switch on the left wall.
Level 8 at the end of Broken Valley is pretty much as high as you can be by then.
