Answer:
The entrance to the Hydra cave is underwater in the maze in Poseidon's realm. Swim across the top, down the right side, and then left across the bottom.
The "gnarly monster" is the five-headed Hydra. When you approach it, it will strike out at you with one of its heads. Before it hits you, jump high into the air. When you come down, land on top of the head, knocking it out. Repeat this for all five heads, before any can wake up. Swim beneath the Hydra to get a scale (one of the 5 sacred items).