Bloodmoon:The Siege of the Skaal Village

Quick Walkthrough
# Return to Skaal Village and speak with Tharsten in the Great Hall. Before you exit the building you will be informed that werewolves are attacking the town.
# Exit the Great Hall and help the villagers kill the seven werewolves that attacked.
# Reenter the Great Hall and kill the two werewolves inside. Note that Tharsten is now missing. Upon killing the last werewolf you will be infected with Sanies Lupinus.
# Speak to the Shaman Korst who is now outside.

Detailed Walkthrough
Return to Skaal Village
After dealing with the Draugr Lord, Korst Wind-Eye on the Northern shore of Lake Fjalding tells you to meet up with him again in the village after a time. You can head up right away and enter into the Greathall to speak with Tharsten. Before you leave the hall, you are told that the town is under attack by werewolves by the guard with Tharsten. Exit the Greathall and help out the villagers to kill the seven attacking werewolves (the guards do a pretty good job by themselves). After the seven are dead you will be told that some werewolves got into the Greathall. Enter and take care of the two in there to find that the Honor Guard is dead and Tharsten is missing (much like the Captain of the Fort, strangely enough).

Korst Wind-Eye
Exit the Greathall and you'll find the shaman has returned just outside. Korst thanks you for helping to protect the town, but informs you that not only is Heart-Fang missing, you've also contracted the lycanthropy disease (Sanies Lupinus). In three days you will turn into a werewolf yourself, unless you use a simple Cure Common Disease effect during the three days to cure yourself. Until you are cured, you are banned from the village in order to prevent others from being infected. (You do not need to cure any of the villagers, though if you have a follower in tow, such as Fjorgeir or Calvus Horatius, it is advisable to cure them since such NPCs can contract diseases.)

At this point you have a major choice to make: use a disease-curing potion or spell (or visit a shrine and get the appropriate blessing) within three days to cure your nascent lycanthropy, or do nothing and become a werewolf. Note that if you have cured your Corprus Disease and become immune to common diseases, this is the most convenient time to become a werewolf, as there is no avoiding becoming infected here despite that otherwise-effective immunity.  If you later decide to become a werewolf, it is possible to counteract your resistance to disease with a spell of Weakness to Common Disease 100% on Self, and contract Sanies Lupinus from fighting other werewolves or searching their corpses. (This also works for vampirism.)

This is a major turning point in the Main Quest of the Bloodmoon expansion. If you decided to cure yourself of the disease, you will continue on with the Main Quest helping out the Skaal. However, if you decide to let the disease take hold and transform you into a werewolf, there is no turning back. Upon your second transformation you will receive a dream vision from Hircine, after which you will be irrevocably involved with this Daedric Prince for the duration of the Main Quest. There is a cure for your full-blown lycanthropy, but you will not be able to receive it until after you have completed Hircine's tasks.

For more information on how the path diverges as well as the differing rewards for each path, see the various quest pages of the Main Quest article.

Become a Blood Friend of the Skaal
If you decide to cure yourself, return and speak to Korst who names you a Blodskaal (a blood friend of the Skaal). He also gives you Rigmor Halfhand's former residence. If you became a werewolf but have finally managed to cure yourself, speak to Korst about having been infected to be rewarded with the same.

Notes
The infection that takes place after completing this quest is scripted and it is impossible to avoid by any means, even with 100% resistance to Common Disease, or even by using only ranged attacks and spells and never getting within melee range of the werewolves. The infection is indicated by a red icon added to your Effects icon bar.  Hovering over this icon shows "Drain Fatigue Sanies Lupinus: 1 pt".
One seemingly logical but ill-fated way to handle this battle is to cast a mass-effect Calm Humanoid spell on the werewolves.  The spell will work, but if you then attack them before it wears off, you will, bizarrely, be charged with a crime for attacking a peaceful NPC in town and the guards will try to kill you.  Also, you cannot enter the talk screen with the calmed werewolves, thus precluding taunting them into attacking so that you can legally kill them.
If you wait until daylight hours and then enter the Greathall, you might find non-hostile werewolves inside.
The Skaal guard in the Greathall gives the journal entry that spawns the wolves outside. If you have killed him, you will be stuck at that point in the quest.  PC users can fix this by adding the journal entry   .
If there is something in the Greathall you find worth looting, this is a good time to do it as everyone inside is dead.
All items inside Rigmor's Hut are lost once it becomes the Blodskaal's House. If you used Mark inside before you were given the house, you can still get there through Recall and all the items are there.
The Werewolves are technically NPCs, not creatures. Because of this, they cannot be soultrapped.

Bugs
 
On PC versions of the game, this can be fixed by adding the journal entry  .

Quest Stages