I'm having same problem on Xbox 360, I think I got sidetracked after he entered warehouse, but I gotta confront him and he's nowhere. I did the texture glitch where you glitch under solitude and go down the mountain and he's not there or in the water ( see YouTube scoundrels folley bug fix) he not any where, I just keep trying like every week or so hoping he will reset/respawn. I'm a thief like player and I care more about the thieves guild story arc more than the main questlines, which I barely do. Bethesda really needs to fix this. On pc there is some code to reset npc to where they should be. This svcks

FWIW if the quest isn't totally bugged you could return to an earlier save and do what I did: trigger the start of the quest with about 20 minutes' worth of invisibility potions in inventory. Shadow him as soon as he leaves the inn and stay on his tail. With decent stealth skill (or equipment) plus invisibility it should be possible to get past all the guards without a fight until you actually confront him at the end of the grotto.

It didn't actually take 20 minutes to complete the quest; just happened to have that many potions in inventory and it turned out to be more than enough.

You need to do what I did, I went to the Thieves Guild, and killed Dirge because he has no use in the game. So I payed off the debt to get back into the guild, and went to the Brinewater Grotto and Gulum-Ei was there at the end.

I'm not sure if the PS3/X-Box versions autosave every time you fast travel like the pc version does, but, i've done this questline twice now on different characters. You don't need to follow him step by step (that takes forever), what I normally do is fast travel to Solitude stables (or if you already have East Empire Warehouse discovered you can fast travel to there), sometimes Gulum-Ei gets stuck in the sea by the docks (i'm not sure what causes him to do this), but continue on to the warehouse regardless. Entering the warehouse usually resets his position to just in front of you. If he is not there you can reload your last autosave (will be from wherever you fast travelled to last). From there you can take as much time as you like, it is not important to stay close to him once inside the warehouse, he will continue on regardless of what you do. I normally clear the warehouse for some nice loot + the map which Devlin will buy from you.

When you are ready head down the steps into the water that looks like you are walking into a dead end, just before you walk into the wall you will see a small passage way off to your left, enter that and head all the way to the door for "Brinewater Grotto". On entering your quest objectives should update, clear Brinewater grotto and at the end you will see Gulum Ei, note: he can get spooked by the fighting and run away till combat is over. If after all this he is still not where he should be you will have to reload and repeat and keep your fingers crossed. It is worth saving regularly in important questlines due to quicksave always overwriting your last quicksave, you can't rely on just using that.