SURVIVING THE NIGHTMARE
Before heading here, we do recommend getting your companions, as this fight can be pretty hard.
Each member of your team will have an individual nightmare, however the common thing about them is that you'll have to convince your allies that they're living in a dream. Depending on a person this may be difficult, however you will have a chance to rely on persuasion or intimidation. Each nightmare will end in a battle with a demon and defeating this monster will allow you to free a member of your team. This is very important, because rescued team members will join you in the final battle.
Defeating the Sloth Demon
Make sure that you've rescued your allies and defeated five demons in order to have access to take on a sloth demon. Use the pedestal and confirm that you want to travel to the Inner sanctum (The Circle Tower Inner Sanctum & Harrowing Chamber M, 1). Thankfully your opponent will give only a short speech this time and immediately after that the battle will start (The Circle Tower Inner Sanctum & Harrowing Chamber M, 2). Choosing the form to transform yourself into is not a crucial deal here, because all forms may come in handy. I was using a golem form for most of the battle, however you may also decide to use ghost's spells or burning man's fire attacks.
Ignore the initial health bar seen near the main boss, because each time he's lost enough health he'll regenerate and reappear in a different form. Keep attacking the demon and don't forget to heal your team members if they lose a lot of health. The boss will finally seize with the transformations and you'll defeat it. This quest will end with a conversation with Niall after which you'll return to the Circle tower (The Circle Towers Upper Level M, 7) and resume Broken circle quest.