I ran into a problem that stopped our game cold.
I was the OL. I had the siren lieutenant in play. I had her pick up a quest item. I was moving her toward the lighthouse.

The players intercepted here. So there needs to be a battle.

It says she has skeletons with her, and the encounter with lieutenant rules say to use the info on her card INSTEAD of an incident card.

1. But her card does not list a boat.. I have no way to setup the board. I have NO idea how to handle that situation.Any thoughts?
2. Also the only way to encounter a lieutenant is on an island, but it still says to draw a encounter, which is all sea based.
3. Lastly, when it talks about defeating an lieutenant, it talks about 4 conquest for killing it, plus 2 more if the incident boss is defeated, but if you cant place a incident card, how does that even work? That doesn’t sound possible.

This just ended our second session within the first 30 minutes

As for the first question, skeletons have swim, so they simply set up in the water with the Siren. Number two is simply the way the rules are for encounter's with lieutinents, and as for number 3 I'm not sure. I think the 4 conquest and 250 coins for killing the Siren would be INSTEAD of the normal 100 coins 2 Conquest for the Incident Leader. That's just a guess though.

Also don't forget that lieutinents get to start with their power card in play for free (Hordes of the Things in the case of the Siren). I would take either 2 more Skellies or Spiders since they have Swim. As for your 2nd question yes you can only fight them at Island spaces on the overland map, but you still draw a location card.

For Lt encounters you still draw a LOCATION card. Note what the rules state:

Encounters Involving Lieutenants
When the heroes attack, or are attacked by, a lieutenant, an encounter ensues that is similar – although not identical to – a normal encounter.

First, rather than drawing an Incident card, the overlord uses the lieutenant’s card as the encounter’s Incident card. In addition, if the “Shipwreck” location card is drawn, discard it and draw again.

Note that the rules state you do not draw a INCIDENT card. It does not mention anything about not drawing a LOCATION card. In fact, it mentions what to do if you draw the "Shipwreck" LOCATION card.

This is the same as a RtL Lt encounter.

So to reiterate:

1. No boat, nope. They all have to swim. Only encounters that mention a boat for the monsters make them have a boat. (Edit: This includes none of the lieutenants, they all either swim or soar)
2. No incident card (because the lieutenant encounter is the "incident"), but similar to regular incidents a location card is drawn. So yes, it will be on the sea instead of the island, while they all are in an island location on the Torue Albes map. The Island Levels are only used for regular island exploration.
3. I'm not sure if you're talking about a translation of the rulebook. The English rulebook is quite clear: "if a hero kills the lieutenant, the heroes gain 250 coins and 4 conquest tokens (instead of the usual 100 coins and 2 conquest they get for killing an encounter's leader)." Emphasis mine.