lol...ok we cannot find it. We must be looking in the wrong place I guess, We went round every tower which we thought was the inner city, the gate is where the Prison and the PvP Arena is ? If so, we climbed up to the battlements, ran around the entire inner city checking all towers, about 15 in all. Nothing :/
The chest is actually at the top of the tower, you need to look carefully for a ladder that leads you up. It's one of them around that area (prison / PvP Arena) I'm AFK in game, but if you're reading this and online right now, zone to me and I'll be there: "/zone Xan Exar"
I've tripped by a crafting table and taken over 900 damage leading to a death, and I've tripped on a parapet as well instantly killing me though I didn't fall. I really hope they fix that bug, especially with the upcoming PvP loot rules and item wear through death.