The part where you have to spy on the Blood Legion guys doesn’t work if there is a second player character inside of the instance.
Essentially, I was in the instance with a friend of mine that’s a Charr. He couldn’t progress past that point with me in the instance. The characters we were tailing would not speak (like they were supposed to) to the spy that they were supposed to be talking to while we tailed them. They’d stand there and do nothing and the story would halt at that point. We could only exit the instance. Once I left the party so that I couldn’t join the personal story instance the next time he tried, it fixed and the characters spoke at the right time, allowing the quest to continue.