After your meeting with the ruling council of Baldur's Gate, Jospil can be found standing near Duke Eltan, though he will also wander the area. Speaking to him once begins the quest. No matter what you say, he will be too depressed to continue conversation and will need a moment to compose himself.
When you speak to Jospil a second time, the resulting conversation will determine the resolution to the quest, based on how much you are able to brighten his mood. There are three topics to discuss. The questions you can ask him after discussing a certain topic do not affect anything and only provide additional background info. When you tell him "I have another question," you'll be given an opportunity to cheer him up and return to the main conversation tree to talk about something else. Running through the same topic again will not give you another opportunity to cheer him up, so you will need to say the right thing the first time.
When you tell him "farewell," regardless of how many topics you have discussed, you will receive a reward based on your previous answers and the quest will be complete.
Where reports are coming from
The dukes call upon the best and strongest the land has to offer. We will thwart the crusade.
To believe yourself helpless is to admit defeat before the battle is fought. Have faith in your own abilities, and you will prevail.
As noted above, telling Jospil to assume his friends are dead is so upsetting to him that he will stop talking to you and you will receive no reward, even if you had given encouraging responses earlier.