SirRFI, u r correct by your solution, however, forging the battle-worn sword in a runeforge does not successfully create a runeblade, which is another bug in the same quest.
That would have worked, but since even if u have the sword u can't forge it, I suggest putting the forged Runeblade in that game object as a temporary solution for the quest:
Code:
INSERT INTO loot_gameobjects VALUES (5304, 190584, 38631, 100, 0, 1, 1, 0)
38631 = the id for the Rune-Blade
if u wish to insert the battle-worn sword or simply add it to your bag, the id for that is: 38607
As for the next quest, even if u get the key, it does not release the prisoners.
For some reason I got the key, but didn't manage to use it on the Unworthy initiates.
Some Lua script or DB query that fixes it would be sweet.