As you were folks, this was a bug.
I'm sure that the tumble weeds blowing through the thread were more a sign of you all having major problems with V1.2 than anything else.

But I can confirm for anyone who might be reading, who see's the same problem, that it was only a glitch.
Following the same logic I used on another broken quest a little while back, I returned to the scene of the crime a couple of days later and found that the Dragon in question was deader than Elvis. Then as I approached he gave up his soul, so all's well that ends well.
Wow, what an enigma this game has turned out to be eh? On the one hand, in so many ways delivering on its game of the year potential for many. But then on the other hand suffering from a case of, sadly by now par for the course among developers, unfinished code syndrome.
I am lucky enough to have read a warning in time to avoid the poison 1.2 patch and so am still enjoying the much less broken prior version and I have to say that it really says a lot for the game (this version at least) that despite it's niggles it's been a fantastic ride and has already given me hours and hours of fun.
What a bizarre sign of the times, that I find myself pointing at 1.1 and seemingly suggesting that.. well, it's ok because it's "less broken".
I really feel for those of you who got caught out though and very much hope that V1.3 is both quick to arrive and that it solves most of the games issues. I think Bethesda have created something outstanding in "Skyrim" and I sincerely hope that they're quick to respond in repairing the code they ought to have made sure of in the first place and in doing so, giving the game the chance it deserves to shine.
Badger