Towards the middle of the Forsworn Conspiracy quest, the town guard warns you about snooping around and asking questions. Later in the quest, you find that the town guards have murdered Eltrys because you were snooping around too much, and they try to kill you to.

In my game, I beat the 5 or so guards that came after me in the building. I then prepared to go full-on beast mode when i left the building, expecting all the guards in the town to attack me. I came out with my chain-lightening blazing, killing all of the town guards, and rushed into the mine-prison to face Madanach. After I screwed around in the mine for a few minutes and realized that there is no way to go deeper into it, i read my quest log. Doh. Apparently "my only option to clear my name is to let myself be imprisoned inside Cidhna Mine and locate Madanach". In such an "open" game, that is my only option? I can't break into the prison, murder this guy and stop their revolution? Really? In desperation, i went back out to town to see if a guard could bring me in... nope. i killed them all. And now my autosave AND the backup autosave are of after i already killed all of the guards.

None of the playtesters did what I did? Really? Or is it just that no one playtested this at all? Or did they, and the devs just didn't do anything about it?

The guards in town should respawn eventually. In previous elder scrolls games it took 3 game days to respawn. Not sure how long it takes in skyrim.

So try leaving markarth then using the wait option to wait a few days. Although if you killed loads of guards your bounty may be so high that any new guards will just try to kill you instead of arresting you.

the quest is in the completed category, so i guess it is considered failed.