You could just put a point in poison cloud and kill him without losing reputation points and get the loot. Then hop on over to Ars Magica and kill the merchants that you don't need and won't let you loot (that annoying potion guy for example). I got a beautiful amulet with 5 charm slots in one of his chests (no reloads either!), and some other minor treasure.
Thanks for the tip, but what I was really angry about was having to invest a point in a non-warrior skill (I'm a warrior <img src="/ubbthreads/images/graemlins/winkwink.gif" alt="" />) that I'll never use again. Poison cloud wouldn't be any different. It all kinda related back to my two suggestions for the game I made on the suggestions forum.
Anyways, I rescued Penumbra, got the dagger, got the book, and got a painful treatment in the brothel. Thats the last time I let a woman do that to me just for some extra expirience! <img src="/ubbthreads/images/graemlins/tongue.gif" alt="" />