Requirements: You will need the sneak skill or spell, and you must first complete the <a href="/quest/146">elite guardsman quest</a>.
Go to 'A Craftmaster's Shop', ASK WOODCRAFTER VAMPIRE, he will ask you for some proof that Vlad is drinking blood.
Go to 'The Audience Chamber' in the palace and get a goblet of blood, if there is not one already on the ground you can kill the page and get a goblet from his corpse.
Return to the woodcrafter and GIVE GOBLET WOODCRAFTER.
The woodcrafter asks you to spend some time amongst the dead and also to speak with the local priest.
Go to 'A Small Roman Catholic Church' and ASK PRIEST VAMPIRE he gives you a sermon on immortal souls.
Go to 'An Unused Graveyard' where you will see a message about reflecting on what you're about to do.
Return to the woodcrafter, ASK WOODCRAFTER THE DEATH OF ONE INNOCENT TO SAVE MANY WOULD BE ACCEPTABLE, ASK WOODCRAFTER IMMORTAL SOUL, he gives a wooden stake to you.
Note: this stake is timed
WIELD STAKE
Go to 'A Descending Stairwell' which is near General Gales room, SNEAK (or have a sneak spell active) and move down and and east until you find some dust lying on the ground.
GET DUST, WEAR DUST and then move south.
Vlad will attack you immediately though he does very little damage, eventually a lucky blow will pierce his heart.
After you've finished the quest, you can go see the woodcrafter again and ASK WOODCRAFTER REWARD.
He will take the stake from you (if you've picked it up) and give you a dark wooden stake.
If you don't have it to you, he'll just guilt trip you and give you a new one anyway.
Credit: <a href="http://www.legenddb.com">LegendDB</a>