Whenever I come close, only the dialogue box opens, nothing else.
This is the original dialog, where he tells you that you can have the key? Picking up the key should trigger another conversation, after which he turns hostile.
A couple other people ran into a different missing quest item, which also should have been on the ground. The workaround for that should also work here (see below);
3rd. Crystal Fragment help
Alternately, the lost key is a minor quest, so skipping it will only result in missed experience from killing the lich and returning the key.
Notes: The world.* files keep track of quest opened locations, as well as objects directly on the ground. Since my game and yours were likely not done in the same order, after file swapping to get the key and trigger the cut scene, the original world file must be restored, or you may find certain areas re-sealed or other quest objects missing.
1 ) Download <link removed> the zipped world file from my save (after talking to the master lich for the first time) and extract it to a temporary location.
2 ) Save your game under a new name, lets say 'key 1' for the sake of reference (or make a copy of your latest save game folder).
3 ) Create a subfolder in this saved game folder, and move that world.x0 file into it. You must restore this file at the end of the procedure.
4 ) Move my world.x0 file from the temporary location into the 'key 1' game folder.
5 ) Re-load the 'key 1' game, so that it is updated. The lost key from my game should now be on the ground in yours.
6 ) Pick up the key to trigger a cut scene, and then kill the lich.
7 ) Save the game under a new name, such as 'key 2'.
9 ) Copy the original world.x0 from the subfolder in the 'key 1' saved game into the 'key 2' saved game, overwriting the file there.
10 ) Re-load the 'key 2' game, and continue playing.