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(1) There is nothing interesting inside the volcano. The "blue dot" down there is a Moonstone. Well, a good ingredient, but nothing to write home about.
(2) Protection from Magic protects from the lava. You must not jump while you are down there. Every time you touch the lava anew, you get hit again, and next charge of the spell is gone.
(3) The simplest way down: cast Feather Fall and Protection from Magic. Now, jump down.
(4) The only safe ways out: Town Portal and Lloyd's Beacon. Flying will not get you enough high. By a short chalk: investigate the volcano once, so that you don't feel that you have missed something - and then forget the volcano 
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