The dialog all worked fine. I killed each group of theives as they appeared. During the final fight with Nigel Cutthroat, I noticed another thief that I hadn't killed yet. I tried targeting him, but I could not. AoE spells (like Hydra or Blizzard) did not hit him either.
I killed Nigel, and the quest dialog continued as normal. However, the other thief was still there. He could still hit me, but I could not hit him back.
At this point another player joined. I could see where the thief was hitting him, but he did not seem to be able to hit the thief.
I teleported back to town, made an annoucement to the other players who had now joined that I felt this game was potentially bugged and I logged out. I do not know if they were able to proceed beyond that point.
I did not see this listed with the other Known Issues, nor have I seen another thread about it.