The Fantastic Dark Blue Levitating Animated Cloak is below Skyside in the not so lovely Groundtown.
Anyone listening closely can here the cloak whispering:
Although most people ignore the hushed cloak, some kinder souls step aside and let the cloak by. Occasionally the cloak "bends" down to pick up a cool looking rock."Oh excuse me. Sorry to get in the way. May I pass?."