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Lake Silverstep Village
His house is on the western side of the map. There you can find a note that reveals some important stuff. You can then go talk to Ayvar and say "Let's talk about this hunter - Ivar was it?" and you can get more information out of him. From there it should be easy
He begins on the clifftop near the cave, top left of the map.
After you kill the Cyclops he's gone.
If you go back to Ayvar and click on "Let's talk about this hunter - Ivar was it?" you will get NEW DIALOGUES to say where he goes to hide.
Even though that dialogue choice will be greyed out there's new stuff under it which is where you find the solution. Bad game, dumb choice.
If you already have the sarcophagus bit done you need to talk to one of the named villagers (Ayvar) and he'll tell you where Ivar went.
Imagine the quest being called "The Silver Dragon", be a little more ambiguous about the existence of this mythical creature and it'd be made clear the villagers swear fealty to this mythical creature and will accept no other ruler (putting the questline in direct opposition with the baron/ness).
Again the game does everything in its power to be vague about its intent and murky dialogue options but yeah- it's a great little story.