Probably within a couple of miles of Richter's domain at best, might not go any further. Seems more like a convenience thing. Otherwise it would make the dungeon useful for war. An entrance downstream as far away from the village as possible (no more than a mile from exiting the mist, no reason to open the dungeon to invasion once it turns out the portal can be forced open) would be ideal. In the same area they should build a walled town capable of handling all the things mentioned by others above. This will be the entrance point to the outside world for travelers coming up the river to trade, in search of adventure or opportunity. Once the mist stretches far enough, they should build more such towns on major trade routes to the north, and east of the village.