Yes, it sounds wrong - but you only need to add "it" to make it sound right! Alternatively, you could take the "was" out: "...until recently rediscovered...".
Me again - sorry! "Was squatted" needs to be "squatted in", and you can't have "a scale mail" - it should be "a suit of scale mail" or "some scale mail" (or possibly just "scale mail").
There's a typo in "An uncanny, sprakling hammer..." (should be "sparkling"). You should really say "The corpse of a dwarf..." rather than "A corpse of a dwarf...", and "The incinerated body of a dwarf..." rather than "An incinerated body of a dwarf...".
