The hermit is a deranged apostate who lives in the forest. He believes the trees are out to get him and that "they" sent the Warden as part of some conspiracy. Zathrian reveals to you that the hermit is infamous among the Dalish; he is a Shemlen blood mage hiding from the Chantry. He apparently constructed a tower in the Brecilian forest which has since mysteriously disappeared.
Upon entering his campsite, the Mad Hermit will teleport next to you, and begin a tirade while swinging his fists. Upon engaging what can only be loosely categorized as "dialogue" with him, it will become abundantly clear that something is amiss: first and foremost, the Hermit speaks in questions, and insists everyone around him do the same (or it's a game which gives him amusement).
Through the dialogue (and several quests), it is possible to extract information (and items) from the Mad Hermit, the most important being the Grand Oak's Acorn.
He also asks you to kill the Grand Oak that keeps harassing him about an acorn.
If the Warden chooses to side with the Mad Hermit and kill the Grand Oak, the hermit will aid the Warden in progressing to the center of the forest for the questline Nature of the Beast.
However, the Hermit requires 1 Werewolf Pelt for the whole party, this can be used multiple times to enter the Ruins.
Bug! If you have more than 1 Werewolf Pelt in your inventory, ALL of them will be used! So go sell them to Varathorn first before talking to Hermit.
Note: Once you have completed the Nature of the Beast storyline, you can no longer trade with the Hermit, nor can you agitate him into attacking by rummaging through the stump.
Note: It is possible to not be able to obtain all items if too many questions are asked, the final question being "Have you... ever been in love?"
The Hermit accepts the following items:
Athras's PendantAthras's PendantAmulet A pendant made from polished walnut wood, carved to look like a pair of circling hawks.
4% spell resistance, received after bringing him news of Danyla.
Armor: 1.75 Fatigue: 0.55% +2 constitution, the boots from injured Dalish hunter Deygan (in the West Brecilian Forest).
Dusk RingDusk RingRing The signs of dwarven craftsmanship on this ring are clear. Carved from a single, flawless piece of amethyst, it is heavy and cool to the touch. When equipped in a set with the ring named Dawn, the character gains a bonus to armor.
+3 cunning -1 strength in the chest by the tree in the abandoned campsite (-1 strength and +3 cunning). The option "A silver ring" actually means this ring; the hermit won't take just any general silver ring.
Halla HornHalla HornAmulet The halla antler has been worked into a torc of wild ivory vines.
+10 mental resistance The halla horn necklace crafted by Varathorn if the Warden lied to Elora about the halla.
ScarfScarfPlot Item Patterns like sunlight falling through leaves have been woven into this scarf. , received from Danyla.
The Tale of IlorenThe Tale of IlorenItem This book, acquired from Cammen, relates the Tale of Iloren, in its most cherished form. , from Cammen.
Song BookSong BookItem A leather bound book entitled, "In Uthenera". , in the chest behind Lanaya (Zathrian's first).
Bug!xbox360Deygan's Boots may not be in the list of trade items when speaking to the hermit, despite them being in the players inventory and not equipped to anyone.
Note: This may not be a bug. Deygan's Boots is only offered as a choice after you offer the hermit gold and he refuses. The boots are listed as "How about these leather boots?"
Three of the above items are required to obtain the three items from the Hermit:
Grand Oak AcornGrand Oak AcornPlot Item This acorn is enormous, as large as a human skull. The sight of it would probably cause a squirrel to die of sheer joy.
One possible approach to the Mad hermit is to try and maximize the number of items obtained from him. This can be done by following this sequence:
Trade with the hermit
Trade for the Oak Acorn first, so that it won't be retrieved from the Tree Stump (see below);
Trade with him again based on what items the Warden has collected and the items the Hermit offers in exchange;
Inspect the Tree Stump
The Hermit will take exception (eventually leading to a fight -but running away works once object is attained- see below), but first the Warden will have a chance to pick one item out of the stump; the item may be
Grand Oak AcornGrand Oak AcornPlot Item This acorn is enormous, as large as a human skull. The sight of it would probably cause a squirrel to die of sheer joy. (unless the Warden has already obtained it via trading);
Golden RingGolden RingRing The curious geometric patterns on this indicate that it was made by the dwarves. The metal is a brilliant golden color, but has an odd greenish shimmer that suggests it is not gold.
+1 constitution;
If Zevran is in the party: when you approach the Tree Stump, he will offer to show off his quick hands. He will successfully steal the item from the stump, but the Hermit will still attack.
The Mad Hermit will summon a couple of Greater Rage Demons and attack the party after they rummage the tree Stump;
If Dog is in the party: the Hermit's tent acts as a Landmark;
The Hermit may be imprisoned/frozen, but being a Boss, can't be shattered. However, he is affected by stun, knockdown, paralyzation and other disabling attacks.
Mana Clash is, as usual, a great spell to use against him. Glyph of Neutralization is also great, preventing him from casting any of his spells and forcing him to rely on his modest staff damage.
Commoner ClothingCommoner ClothingClothing The practical Fereldans are partial to plain garments such as these. They are constructed of sturdy fabric and are trimmed with only the simplest of embellishments.
Emerald RingEmerald RingRing The gemstone in this ring is so ostentatiously large, it can probably be seen from half a league away.
DiamondDiamondGem A brilliant cut, colorless stone.
EmeraldEmeraldGem This dark green gem has murky depths, like an overgrown pond.
RubyRubyGem Deep red and nearly indestructible, these are prized by royalty.
GarnetGarnetGem A gem the shade of dried, dark red, nearly black.
Greater Health PoulticeGreater Health PoulticeHerbalism A skilled herbalist has rendered a variety of medicinal ingredients into this soothing, restorative substance.
Greater Lyrium PotionGreater Lyrium PotionHerbalism A potion that contains a small amount of refined lyrium.
Potent Lyrium PotionPotent Lyrium PotionHerbalism A potion that contains a small amount of refined lyrium.
Swift SalveSwift SalveHerbalism Made from tallow, swift salve is infused with peppermint and is refreshing and zingy.
Increased movement speed for 60 seconds. Increased attack speed for 60 seconds. Increased aim speed for 60 seconds.
Expert Frost RuneExpert Frost RuneWeapon Rune This is the Tevinter rune for winter.
+3 Frost Damage
Expert Flame RuneExpert Flame RuneWeapon Rune This lyrium rune is the ancient Tevinter symbol for Toth, god of fire.
+3 Fire Damage
Expert Lightning RuneExpert Lightning RuneWeapon Rune This symbol is the old Tevinter rune for tempest.
+3 Electrical Damage
Expert Dweomer RuneExpert Dweomer RuneWeapon Rune Dweomer runes get their name from the ancient Tevinter name for dwarves.
+6% Spell Resistance
DreamseverDreamseverRing Crafted during the third Blight, this ring projects an antipodal application of Fade energies that can disrupt or outright destroy.
Note: It appears that if you reset too many times, instead of receiving a random amount from 55c to 6g, the game will fix the coin reward at the minimum 55c
His first question to the Warden is "What is your name?" and sounds very much like the toll bridge keeper in Monty Python and the Holy Grail.
As you reach into the old stump there is something else moving around that stabs you painfully in the hand. This seems to be a nod towards the treebeast trial in the 1980 Flash Gordon film.
To end his answers he always says, "But that's all I have to say about that," which is a possible nod to Forrest Gump.
The encounter may be a reference to the classic 1988 text game 'Fish!' by Magnetic Scrolls, in which an insane hermit in the woods guards a tree stump containing a ruined golden ring.
Edit
Deygan's Boots may not be in the list of trade items when speaking to the hermit, despite them being in the players inventory and not equipped to anyone.
Bronze
to 6 
, Constant drop.
