So I was doing this Quest earlier and I went to the cave where Sinding the Werewolf was hiding out. At first I chose to slay him at Hircine's request. (Took Beast Form myself to make it a more even match.) With the help of a few Hunters I dispatched Sinding, and once he was dead I needed to wait for Beast Form to wear off so that I could skin him. I walked about with one of the Hunters, who didn't seem bothered about me, round a corner, where three more Hunters decided to draw their weapons and attack me! Was this because I was a Werewolf? Anyway, at that point I changed back into my Redguard form, but they were still attacking, so I sorted them out.

However, once I got back to Sinding I couldn't see a way to skin him. The locator arrow was on him, but no options on the cursor, no weapon would do anything.

So I just reloaded, played out the Quest again, only this time sparing his life. Felt nice to fight alongside another Werewolf. And Hircine didn't seem to mind either when I left the cave, so perhaps this was the path I should have taken in the first place.