This one is a little tricky... You will apparently defeat Loki at Raven's Spire, but you will not yet be done with him (that seemed a little too easy, didn't it?). Once you leave Raven's Spire via the portal to Warrior's Hall, the Destroyer will be recovered but still encased in ice. You will need to solve 4 easy puzzles to get the swords necessary to release the armor from it's enchanted ice prison.
The 4 swords will be behind the 4 corresponding portals in the east and west walls of the hall. The only one of the puzzles that does not have an obvious solution is the one where the sword runs away from you as you approach. For this one, don't follow the sword into the portal. Instead, head for one of the other portals and you will end up in a room where the sword lets you approach.
Once you have the four swords Loki will appear again and thank you for releasing the Destroyer when he could not... just before he attempts to kill you. This will be the final battle with Loki. Don't hang around in the main hall, as this is pointless. You cannot put a dent in the Destroyer (now controlled by Loki, who disappeared into one of the portals).
Enter each portal room until you find the one with Loki's inert form encased in some kind of force field. The Destroyer Armor will follow you into each room along the way. When you get him to the room with Loki, lure him close to Loki, then start attacking with everything you have. This is because the Destroyer is only vulnerable when they are in proximity. Eventually you will take them both out. Quickest is if all your hero are charged up and you use your special powers.