Maybe it's because I have a related problem, but this seems to be the easiest thing in the game to fuck up, by far. There are multiple situations that break Karlach's quest, and so far no one has found an alternate way to progress it (without Dammon).
I'm pretty sure the undead thing is intended. In my case I got a bug, in which the quest referred to a dead character and updated as if he was alive (Dammon wants the Infernal Iron, Return to Dammon, etc.) despite the fact I never even met him or talked to him.
Last edited by SeleukosNikator; 10/08/23 02:41 PM.