This quest is a deadric quest, or I am very sure it is. If it isn’t be sure to let me know in the comment section of this post! This quest offers an interesting reward, a staff that has a random effect when used on creatures (including humans).
Locating this Quest
You can find this quest by going to the graveyard in Solitude. On the map below I am at the graveyard (you may have to view it in full-screen mode):
Once you are there talk to Dervenin. He is usually there during day time, I found him by going there at 3 am and waiting until about 1 pm and he appeared right in front of me, but he was walking away. Ask him what he needs help with to start the quest.
Gaining Access to the Pelagius Wing of the Blue Palace
The Blue Palace is at the east most part of solitude. You do not have to go outside solitude to get there, but you can fast travel to it. You have a few options to choose from to gain access, I chose to talk to Erdi because she was right in front of me when I entered the palace. After that you can go through the door to your left. Keep exploring the wing until you screen goes black. You will have to go upstairs and follow the corridor. If you have any trouble with this I suggest that you watch the video at the bottom of this page, the exploration of the wing starts at around 1 minutes into the video.
Escaping Pelagius’s Mind
There are three parts to the escape. Each is designed to sooth Pelagius’s mind so that he can return home, or that is how I understand it.
Northern-East Part, Calming Pelagius’s Dreams
You can find this part at the quest marked that is pointing north-east. Use the Wabbajack on Pelagius the Tormented. Each time you do it will spawn different kinds of enemies, initially a wolf and something like a dragon priest at the end. Use the Wabbajack on those creatures to change them into harmless creatures.
North-West Part, Resolving Pelagius’s Conflict
I’m not sure about the purpose of this part, to my best knowledge it is about solving Pelagius’s conflict. All you have to do is use the Wabbajack on the observers sitting opposite you when you get to the arena. I’m not entirely sure which one you have to use it on, using it on the foremost guy who is standing at the edge of the arena looking down seemed to work though.
South East Part, making Pelagius’s Enemies Insignificant
In this part there is a normal sized soldier attacking Pelagius who is quite small and can’t do a lot to defend himself. Use the Wabbajack on the Soldier until he is as small as Pelagius and then on Pelagius to bring him back to life-size.
Getting Back to Skyrim
The last part of this quest is to go back to Sheogorath who is sitting in the middle. Tell him that you have done it. He will talk about preparation for the journey and some other stuff for a while but eventually you will go back to were the screen turned black before in the Wind of the Blue Palace.