I didn't follow the quest marker "blindly". It was a case of coming back to the quest a few days later and the quest text said I should go speak to the Alik'r and directed me to Rorikstead. I had already spoken to Saadia and she had asked me to help her. My girlfriend said that after talking to Saadia her quest updated and pointed her to the Redguard prisoner in the dungeons, but it seems mine didn't do that and I had forgotten that she mentioned it (as you do after a few days) so I went to Rorikstead. Perhaps I should have spoken to Saadia a second time for the update, I guess I will have to test it out on another character.

I turned her in, then killed them both. Decent loot.

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The beauty of this game is that there is no correct answer... It is 100% what you make of it.

I sided with Kematu. I meant to go check out the Alik'r in Rorikstead again but I guess they moved on--or were there in the cave with Kematu when I agreed to not kill him. Next character I make is going to try a different option.

For me i think Saadia is the one who is lying as the moment i stepped out of the cave from speaking to Kematu, i was attacked by a 3 man thalmor squad who had orders to execute me for interfearing with their plans. I will point out that this happens if you piss of the thalmor, but i did not even touch the thalmor nor doing anything to provoke them before i spoke to kematu. i had infiltrated the embassy nor had i tried to free any of the prisoners that are being carried of to be killed for worshiping a god.

I made my decision after talking to Kematu in the cave, but I haven't been attacked by the Thalmor yet. Maybe it was unrelated to the quest?

One thing I noticed: when I first talked to Saadia, she was quick to pull a knife. My reaction was "Whoa, easy there." This doesn't mean she's guilty, but it makes you wonder when Kematu on the other hand gives you the option to talk in the cave instead of rushing you with his remaining three or four men. I guess the quest is meant to be ambiguous, though.

I went with whoever seemed to offer the most (don't know if there is a difference) and who seemed more genuine (the hired mercenaries).

I metagamed it a bit, and tried bother options. Rewards are the same (500g), although if you kill the Redguards you get an additional 150g and 7 Scimitars as loot. I never found anything that would clarify the situation on any body, or in any dialogue. It appears this is meant to be a Gray-Area choice, and you'll ahve to decide based on your characters morals. That said, I can see some parallels between the political situation in Hammerfall and the Civil War going on in Skyrim, and this might be a subtle play to get you to side with the Stormcloaks or Imperials.

In the end, my final choice was to turn her in. As someone else said previously... only one person here is asking for blood. The other is asking for help capturing for a trial.

Kematu's story seemed a lot more plausible than Saadia's.

She also fit the perfect story of a WW2 traitor quite well, so off to the block she went!

Just because Kematu sounds reasonable and is willing to talk it out, doesn't mean he isn't/won't just kill her and ditch her body on the road somewhere, before returning home. If you were running for your life from assassins, you'd be jumpy, and unsympathetic towards them, so Saadia's demeanor isn't too odd. Just playing devil's advocate here.

She doesn't defend her association with the Thalmor very well

Kill kematu for there scimitars, thats what I did.

Yeah.. seems like she's trying to sell us a load of [censored]. Why would the 'Thalmor' hire Redguard mercenaries? Why not hire a few nords to do it? A load easier. They could simply walk right into the inn and kill her at night.

I made several characters and sided with one or the other. I think you get more gold for siding with saadia as both i believe give the same gold reward except killing kematu will let you loot 100 gold. But this is really just a quest you're going to have to trust your gut on, or take a chance.

Well I didn't like the fact that Kematu was hiding in a cave with bandits, so I killed the lot. If they were on an official business to get a traitor one would think they would have their base in somewhere more legal.