I was one of the many who couldn't get past the 3rd part of the quest because of a bug where heating one of the dwemer chest-like things wouldn't do anything despite it being exactly what was necessary to progress the quest.

I also learned that the unique item you get at the end is something my mage character would love, though it ruined the epic surprise I would have had if I hadn't ran into the bug, being a huge Morrowind fan and all.

Have they fixed this quest yet, or is it still bugged where you can't get past the 3rd part?

I finished it on my last character (on PC) prior to the new patch.

I haven't tried it since the patch, but it was broken for me before.

Has anyone had a problem with heating the soul gem and not having the quest update since the patch?

i did this quest awhile ago on a previous character, it worked fine

http://www.youtube.com/watch?v=QX1Ge2sTvzchis is the issue I'm having. If anyone knows a way around it, I'd be eternally grateful.

It worked fine for me.
The reward is strange, lol. Poor Arniel.