Ok during the quest I keep getting really bad framerate to the point where it looks like the game is frozen but always comes back. I Have no problems on the first part but then the second part where you fight the falmer and try to open the gate with the 2 switches I get nothing but lag and framerate issues. Then the 3rd part and 4th part everything is fine.

So any suggestions on this framerate issue? This does not happen anywhere else in the game only when i get to this part? this has been going on since I first got the game

Aye, this happened to me too.

Speaking of thieves guild, there is no option for me to upgrade the Nightingale Blade

Yes. this quest is notorious for 1 second freezes/slideshow gameplay on the Xbox. Hasn't been addressed since release. Fortunatly it doesn't carry on once you finish the quest so you should just try to get it over and done with, and remember don't save anywhere in the dungeon.