I'm sorry to say, i can't help you on the "Axe of Stone" quest, mainly because i never gave any character ale? but to kill josephine, i had a big problem with that as well, i learned that everytime you kill her deathknight, she just summons another one, so just leave him alone, i froze her and cast deadly discs (or any spell that doesn't require a specific target) as fast as i could click while using healing potions and that about did it
