Alysmera's redemption
After finally killing “Dundellon’s Nightmare”, you won’t wake up immediately. Instead, you’ll go through another dream scene, in which you’ll meet the ghost of Alysmera herself.
This final scene consists only of some talking, so there’s nothing to find or fight anymore. You just need to make the right decision on what to say.
After that, you’ll finally wake up from the nightmares for the last time, to find yourself back in reality, with the real, persistent Blade of the Haunted in your hand!
You did it! Congratulations!
After killing Dundellon’s Nightmare, it takes some 15-20 seconds until you’ll be teleported automatically to a new cell called “Alysmera’s Redemption”. It’s a vast, strange cave of mixed Ayleid and natural style (a little like Aaro’s Tomb, only much bigger and full of vegetation and mysterious lights).
There you’ll meet Alysmera’s ghost, standing on top of the same abyss into which she threw herself once, according to the legend (yes, I assume that you’ve really read that story, haven’t you! ;)).
Talk to her and realize that you are just going through an old story, playing the role of ancient Dundellon for her. Choose your answer’s wisely, and you will give her redemption, which will finally release yourself from the nightmares as well.
It really easy (and as far as I know, nobody had any problems with this scene so far).
Walk down the stairs in front of you to reach the bridge leading over the abyss. This is where you’ll find her.
She thinks that you are Dundellon, so she waits for you to regret what you’ve done. You just need to ask for her forgiveness, that’s all. Choosing the wrong answer is not a fatal thing: Doing so will only wake you up immediately. During your next time sleeping, you will find yourself back in this very scene again (which means you don’t have to fight the ghost once more, you just get another chance to choose your answer).
After giving the correct answer (and some more talking), she’ll throw herself into the abyss once again, which is the only way to find release.
You’ll get another journal message, then a portal will be activated at the end of the cave (where you’ll find another, slightly different looking version of the “Fountain of Dreams”).
Use the portal to leave the nightmare, return to reality, and thus end the quest.
There’s nothing else to be found inside this cell, so there’s no reason to search that vast cave except for some sight-seeing!