The bug happens in the Outcast's Respite, which is almost at the north-west corner of the map. There is that magical purple cloud pool that you can drink from and get different effects. Well, if you play around long enough and get morphed in one of those creatures, you'll find out that all of your equipment and current weapons will vanish to the void. Unfortunately I found out about it too late, when I had all the saves after this event and there is no way to get my stuff back.