Vampire Faction -- The Bloodstone Chalice
On your way to deliver the message you can explore the castle for a bit if you like -- in addition to some limited looting opportunities there are Alchemy ingredients to be found -- and of course the joy of exploration! On thing you should do as you explore is speak with Rargal Thrallmaster, who will fill you in on the rules as far as feeding on the Thrall goes.
You will find an Alchemy room with some display cases you can pick for some Lockpicking gains, and fairly well-stocked bookshelves that includes a copy of the Legend of Red Eagle (so you can flag that quest here if you have not already done so).
In one of the display cases is a recipe for Frenzy Poison (Blisterwort Falmer Ear) you should read, though remember that almost all of the stuff in the castle belongs to someone else so you do not want to go stealing it and getting caught! Feran Sadri can be found in the Alchemy Lab and he is a merchant, so you can buy and sell with him. There is another merchant named Ronthil here who can train you in Speech if you still need some leveling there as well as buy and sell -- he has two spells you will really want to have for this stage of play that you should buy: Heal Undead and Necromantic Healing.
On the other side of the main room you will find a smithy in which you can talk to Hestla (a former member of the Circle) who is also a merchant who sells Smith-related items. You should spend some time talking to the other members of the faction in the main room as they sometimes offer you useful bits of information... Once you have scratched that itch follow the marker to Garan Marethi to deliver the message.
Once you deliver the message you learn about the Bloodstone Chalice -- telling him you have never heard of it leads to more information about the item, and then he instructs you to follow him. He pulls a bit of political nose-thumbing on the way to show you the Chalice but you eventually receive it along with some cryptic instructions.
You need to take it to the Redwater Den, fill it there from the source, then add the blood of a powerful vampire...
Completing the Final Step for the Chalice
-- Redwater Den --
Darkwater Crossing is the closest fast travel point to the Den and one that you should already have available to you -- so head there and then walk or ride the rest of the way... When you arrive you find that there are a couple of lookouts posted and they are somewhat abrupt in telling you what they expect. No matter, head inside and down to the basement.
When you talk to the Dealer at the counter inside she tells you what the place is, and you can talk her out of a sample of the product using Speech. Get the secret behind their version of Skooma from her if you like.
It seems that the Den has been turned into a Skooma manufacturing plant -- bear in mind that this is a very rare potion and is ONLY available during this quest, so you should stock up if you like since you cannot get it elsewhere... If you don't know it, Skooma is what passes for recreational drugs in this world, and it has an effect that is an exaggerated idea of what people used to think opium did. Why not grab a few just for shits and giggles?
Once you are inside the Den you will need to pick the lock on the door and enter the cavern, fight your way through and lower the bridge by pulling the lever. Cross the bridge and head deeper into the mine -- note that there is a gold vein and an iron vein you can mine here if you brought a pick -- if not there are picks on the workbench nearby.
In the lower mine area is a table with some potions and a satchel on it that you can loot, and on the wall there is a chain that opens the secret door that leads to the Source. After you enter the Spring area, where you will battle with Draugr. vampires, and eventually Venarus Vulpin, who is a powerful vampire and also happens to be the leader of the Skooma operation here -- so he has a vested interest in making you dead. You will need to kill him and his Thralls before you continue to The Source.
As you are about to fill the Chalice two new named vampire appear -- Stalf ?and Salonia Caelia -- who mostly do not consider you any threat at all and who happen to serve the Vampire Lord Volkihar -- who also wants the Chalice. They argue about who will be claiming the credit for finding and returning the Chalice as if you are not even there, after which point they attack you.
That works out really great for you since you can kill them, and then by looting one of them fill the Chalice in order to add one of their blood to the water, thus completing the trial! Now simply return to the Castle and report in, relating the events you experienced and you learn that things were not really as it seemed... You were expected to face treachery on this mission -- call it bird-dogging the unfaithful if you like.
That completes the quest BLOODSTONE CHALICE and starts the quest PROPHET.