There is a bug with
- quests that involve the same NPCs: if you have more than one quest involving the same NPC, that NPC won't respond to one (possibly both?) quests.
- server crashes while doing quests: in case of a crash, NPCs can forget the state the quest is in. Sometimes it is possible to restart it from the point that was working last (possibly asking about the blade again), but that also doesn't work all the time.
The quest itself is working, as I completed it recently. However, I did not have a server crash during it, and I didn't even dare to log out, just in case. Still, before figuring that out, I have accumulated several quests that seem to have gone sour on me.