I have a similar mission "Rescue or Ransom a Prisoner", but I have a different issue. I can get in and break out the count, but no matter what (chose both options for him to fight or stay back) he always attacks me in the courtyard. I run around and kill all the bad guys, but the only way out of the courtyard is to: 1 - Kill the count and that resets the mission 2 -enter the castle, but that resets the mission as well. This is a very buggy game with a lot of Script Errors and random crashes. I can't play it in regular mode where I can only save on exit becuase it crashes all the time. Hell, even my install DVD arrived with an activation code that was wrong (it was missing a digit off the last group).
I found that the dungeon door is an arena door was caused by a tweak I was using, the one where you add an option to talk to town guild masters to the town menu