Online:Sir Hughes' Fate

Quick Walkthrough
# Talk to Sir Edmund.
# Visit the infirmary and talk to Odette Jerick.
# Examine Sir Hughes.
# Investigate Alcaire Castle.
# Defeat the Omen of Fear.
# Talk to Sir Hughes.
# Speak with Duke Nathaniel.
# Decide Sir Hughes' fate.

Detailed Walkthrough
Sir Edmund wants you to deal with Sir Hughes, but to show him mercy if he is indeed insane. The murderous knight is in the infirmary, unconscious, so head into the Great Hall behind Sir Edmund and down the stairs to the right to find the sickbay.

Odette Jerick, the healer, wanders the room checking on patients. She says Sir Hughes can't talk and seems to be under a curse of some kind, one she can't treat with her abilities. She will let you examine him, however. Sir Hughes lies on a pallet nearby, surrounded by an ominous-looking mist and writhing in his sleep. Examine him, and you will be transported into his dream.

Hughes dreams of an alternate Alcaire Castle. You will start off in an otherworldly house you may recognize as the home of Sir Hughes himself. Exit the door and look right to see a strange vision in the mist: a ghostly Sir Hughes stands talking with three also-incorporeal Knights of the Flame, and a Daedric monster floats behind him, whispering in his ear ideas which Sir Hughes repeats to the knights:

Omen of Fear: "The Daggerfall Covenant is doomed to fail. You cannot trust the Redguards." 
Sir Hughes: ''"The Daggerfall Covenant was a mistake. We can't trust the Redguards!" 
Omen: "You can't afford to let your guard down. The Redguards could betray you at any time." 
Hughes: "We must remain vigilant. The Redguards could be plotting against us."'' 

The scene will fade away after this. Continue to the castle. Spectres of Paranoia, nearly-intangible wraiths, float around the area and are hostile. Climb the steps and, in the area by the fountain in front of the Keep, you'll see another vision, this time including Sir Croix: 

Omen of Fear: ''"The duke should not have wed King Fahara'jad's daughter." 
Sir Hughes: "The duke's marriage was a mistake. He's put us all at risk!" 
Omen: "King Fahara'jad is planing to invade Alcaire. Duchess Lakana is a spy." 
Hughes: "Lakana has everyone fooled. She and her father are plotting against us!" 
Sir Croix: "But why would the Duchess betray us?" 
Omen: "Duchess Lakana is orchestrating an attack on Alcaire. She must be stopped." 
Hughes: "The duchess has betrayed us. I have to stop her... whatever it takes..."'' 

Head inside the castle, and your objective will update to explore the upper floor. Go upstairs to Duchess Lakana's room, to see her final moments played out in front of you:

Sir Hughes: ''"I know what you're planning, Your Grace." 
Duchess Lakana: "What are you doing here? Leave my room at once!" 
Hughes: "I won't allow Alcaire to fall into Redguard hands." 
Lakana: "Alcaire in Redguard hands? Tears of Zeht! You've gone mad!" 
Hughes: "I'm sorry, but this is the only way." 
Lakana: "No! Please!"'' 
thumb|right|The sword in the stone
Hughes will then slay Lakana and flee. As the image of Lakana's corpse fades, you'll see Sir Hughes again before you, kneeling on the ground — except this Hughes is not in ghostly form, but looking as real as can be. Talk to him, and he will be confused over whether Lakana deserved it, and whether this parallel Alcaire Castle is real or not. When you tell him it's a dream, he will suddenly pull himself together enough to say that it is, in fact, a never-ending nightmare. The Omen, he says, is torturing him by forcing him to watch the murder over and over again. Ask him what the Omen is, and he will tell you a bit more; that it is now hiding, but not gone. The Omen seems to be drawn to Sir Hughes' sword, which was left in the throne room in the dream. If you can find it, you can find the Omen and slay it.

Sir Hughes' sword is stuck into the ground in front of the thrones. Activate it, and the Omen of Fear will appear and attack. It takes the form of a watcher, and can summon two spectres of paranoia to attack as well. When it is dead, it will disappear in a puff of smoke. Turn around to find Sir Hughes standing by the back of the room. His mind is clear now, he says, but his sins remain. You can now leave the nightmare world.

When you arrive back in the infirmary, you'll find that Duke Nathaniel and Envoy Darima have arrived. Sir Edmund sent for them and they came as soon as they could, Nathaniel says. He wants to execute Sir Hughes, but fears his anger clouds his judgement. Once again, it is up to you. You must decide what happens to Sir Hughes.

No matter what you ultimately choose, you will receive Honor's Guardian, one skill point, and gold from Duke Nathaniel. Unanswered Questions is the next quest in the chain.

Notes
If you spare Sir Hughes, he will be stripped of his knighthood and banished from Alcaire. 

Quest Stages