it was a tough one (I'm on lvl22), but the rewards (Dawnbreaker, and tons of gold) were worth all the troubles I went through
...I told my follower Lydia to wait for me behind the closed entrance-door.
If you're a bit into sneaking: upon entering the big room where Malkoran and co are (they aren't facing you, but all facing the altar), somewhere half way along the right, lies a very potent paralize-potion (20secs).
Try to get hold of it.

You can then decide to pull back, and plan a strategy from a different location.
But I proceded to sneak further, all along the right side in the shades, untill I was sorfof in front of the guy, on his right side.
Then I poisened my elven-bow, and planned a sequence of actions that would hopefully lead to his defeat:

- first take a number of potions to enhance my lack of armor (light-footed battle-mage), increase my health (-regeneration), resist Frost-damage (his main and very powerfull attack), raise archery-damage, and poisened a couple of my other weapons etc. It's a rather personal list, depends on your playing-style ofcourse.
- made sure I had my whirlwind-shout equipped
- marked a Guardian Circle scroll as my favourite
- and the last potion: Invisiblity for 20secs.

The actual attack:

- while invisible, sneak untill I was at whirlwind-distance from Malkoran
- fire the paralize-poisened arrow (invisibility breaks now)
- use whirlwind to hurry to Malkoran's body falling paralized to the ground
- use the Guardian Circle scroll to hold-off all the Corrupted Shades (5 of them I think)
- pull a big poisened (stop magica-regeneration for 100% - made this potion myself) Elven greatsword, and start slashing at the guy
- the Elven greatsword is also enchanted, with 18% damage-magica, so his magica is not only decreased with every hit, but also due to the poison, it won't regenerate.
- this means he can't resurrect any fallen Shades anymore, and his deadly frost-spells are gone.
- use a Firestorm scroll to quickly bring those Shades' health down
- keep your health, stamina and magica up with whatever potions you carry (or food/ingredients).

The entire sequence is based on the simple fact that you pause the game, when you pick a weapon, potion, scroll, or spell from the menu, allowing for a rapid change in actions....the whole attack lasts only 40secs or so.

At some point, Lydia decided to ignore my order, and joined the fight...guess she took out a couple of those nasty Corrupted Shades.
Malkoran will turn into a ghost, when dead....you have to defeat that one too (he uses fire-based attacks now), but he's relatively easy to beat.
When all are dead, first take a look around for loot, because taking the final objective (Dawnbreaker) will teleport you back to Meridia's statue.
Lydia somehow stayed behind in Killkreath, but a fast-travel to anywhere brought her back to me.

I also encountered the "double dawnbreaker bug"...from the wiki:


...so I gave Lydia the 2nd one that I found on the floor, maybe someday I'll try to disenchant it, dunno if that will work.