Famous for extreme glitches. Try to ONLY do good deeds OR bad deeds, because a mixture will screw it all up.
Near the pazaak Den is a small mouse-guy who can increase/decrease reputation with the Exchange for a hefty fee. He could possibly help.
A cutscene is supposed to play that shows you and the group running away since you can't beat Sion.
Have you tried to patch the game? Or tried some mod-patches? It sounds like a serious bug which had nothing to do with the way you play.
can supply some fixes...together with other sites.