I think you must defeat Josephine. The item itself is not sufficient to solve the quest (at least not when some people tried to use the lost items procedure to get the item), even if it could be stolen. Level 5 Pickpocket allows you to steal from NPCs up to character level 30, but I don't recall what her level was at this point in the game, and don't know if quest items or boss-type NPCs are exempt from pickpocketing.
