Worked just fine for me a couple of days ago - the second time that I tried it. Of course, the first time I gave him 1pp and 5 gp - gave him 15gp the second time - worked just fine.
The cause of the problem is faction.. I had worked on faction for a few days with no improvement with the guildmaster. But an enchanter casted Illusion: Human on my Erudite wiz and I was able to do the quest.
If your faction is too low, he doesn't ask for the money as I recall. You just skipped ahead as if the NPC had triggered the quest, unless you can clearly recall him initiating the quest (in which case I would /bug it. but it needs to be reproducable).