UFF

Look around, see what you could get. And get what you must get.

look in the cauldron

: The cauldron bubbles with some unknown green liquid. Small bubbles rise in the air and pop. It smells like apple.

This is so obviously poison apple.
Try coating Pally in the liquid.

: Pally now has a refreshing scent of apple.

Look for a staircase, or a ladder, or... some way to go up.

This is actually Oblivion after you save it.

The old woman is the little girl from before.
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Mix apple liquid with your booze.

which can also mean what I said.

: You look around the rooms, presumably looking for stairs and actually find a creaky ladder up.

Test the ladder if it could carry someone of equal weight as you are from its base to its tip, wherever it goes.
Climb it.