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Vodyanoy says: "I've heard there's a cure for this dependency I have on strong pipe tobacco. It's called the Nico Needle. You'll have to travel to the far southeast, to a place called the Needle. Find a guy named the Needle and ask him for the cure. Confused? It's really simple. Go to The Needle; find The Needle; bring me The Needle."
The Needle is a sliver of land in the far southeast. It's east of Mound of Svatibor. Go there and find the Tailor called the Needle. You'll need Persuasion of at least 30.