I have this exact issue. It happened for me after doing a Task for the Valian? Embassy (the task where you end up on a bridge?) and then, after wandering around of a little whilst deciding what to do after this quest, i went to Heritage Hill All the enemy AI is broken, except wizards can still cast *some* spells on themselves. *Spoilers*
However, when i got to the missing soldiers part, and spoke to one soldier before that combat started, he was unaffected (he attacked, moved around, used skills/powers) but the other 3 guards and the Ghost/Phantom/Spectre, whatever she was, were all broken.