When I did this mission, the Thalmor automatically attacked me causing the objective to fail, but the mission continued and let me rescue him and complete it.
It seems as though Bethesda had originally intended to provide a peaceful solution, but discarded the idea. Working as intended?
Somone said there is a missive ID in the game that states to let the prisoner go, though there is no triger for you to get it, therefore I belive its bugged, and it would be stupid to put in a mission that cannot be completed properly.