Like you say there is a known bug for some with this mission. I had it as well. Nothing I did hurt him; blades and spells went right through, same for summoned creatures.
In the walkthrough found
here it says to reload and try again if it happens.
It also links to a fix found
here.
None of these worked for me, although I didn't want to reload from before going into the cave since I had spent so much time looting.
I 'killed him' the same way Count Valerius mentions; I made him jump into the water, and when he started swimming through that underwater canal he drowned. I tried a few times before succeeding. The first couple of times he was swimming fast and got through ok, but that last time he was swimming very slowly and drowned. Not sure why. I was using full 100% chameleon gear this last time, by the way. Maybe this was the reason for the slow swimming, since he couldn't detect me.
Good luck!