Once your party has completed the Act I A Family Heirloom secondary quest and they have access to Aman'lu by initiating Act II, Chapter 1 (The Town of Aman'lu), head west from the Aman'lu teleporter and down the ramp toward the Aman'lu Tavern. Enter the tavern and head toward the stairway at the western end of the tavern. Athelas is standing next to the wall north of the large table near the stairway. Speak to him and listen to his explanation of Master Thestrin's duplicity in that he's really in league with the Vai'kesh. Agree to destroy the demon, which Master Thestrin has unleashed, to initiate this quest.

Although this secondary quest can easilly be completed during the primary quest Act II, Chapter 5 (The Vai'kesh and the Aegis of Death) it is presented here as a separate activity, which you can accomplish sometime after that point. Teleport from Aman'lu to the Vai'kesh Forest (South), then leave the path and head south. They'll pass by or over a Health Shrine. Just beyond it is the entrance to A Small Vai'kesh Prison. Enter and head down the stairs. If your party gave the sword to Master Thestrin, then a cut scene will occur, where Master Thestrin opens the cell door, exclaiming that they're too late and doomed. He then uses the heirloom sword to free the demon from the force field, restraining it. Continue down the stairs and battle the demon when ready. If your party kept the sword, equip it and use it to break open the demon's cage. You don't have to keep it equiped for the impending battle however.

Collect the spoils, then head back up the stairs a short distance and you'll find Athelas, who has appeared after the demon was dispatched. Speak to him to receive your reward and complete this quest.