Are there any downsides (either narrative or mechanical) that you might imagine may result from having the Sunken Queen be located under Castle Korvosa rather than in the Mushfens? In my mind having the final showdown in Korvosa seems more dramatically appealing but was looking to see other opinions as well.
I've been thinking about it myself, as my group is heading into chapter 6. (about to start with the castle).
The only part that I have thoughts on is that (for my party) it would open a big can of worms exploring into a large undercity type complex. (as they tend to want to explore it all to be sure). And I don't want to set a hard bottom to the complex by saying "and under here is waterline".
The other is purely mechanical in that, if it isn't a building sinking into the swamp, why is it tilting.
On the upside, it does keep them in the city, but they also have a tendency to want to back out at the drop if a hat to recover after every fight.
Well, hopefully Ileosa herself is enough of a lure to keep them from getting distracted exploring unnecessary portions of the complex. Making this particular section of the Vaults 'isolated' from the rest would also work to keep them from getting too distracted with exploration.
As per Guide to Korvosa, the city has had a few earthquakes — it's possible one of those caused some structural damage that is causing it to tilt, or the tilted aspect can simply be removed. It's been a while since I've checked that section but I'm fairly certain it was more of an annoyance feature than anything else.
And, if you want to keep them from retreating after every fight... make getting in and out as annoying as possible; they can't teleport in our out of there, so use that to your advantage.
Narratively, I think relocation is a fine and dandy choice. It keeps the action in Korvosa, and whether the heroes succeed, fail, or half-and-half it has the potential for a rather cinematic scene upon re-emerging from Castle Korvosa.