I did this quest, but when I went back to the quest giver, I leveled before I was able to get the item. It also states that even when I did the quest and got the first reward, I failed the quest. Kinda disappointed (any way to remedy this at this time)?

Anyways, I leveled to 37, and it still says:

The guildmaster is pleased to hear of your bold explorations. (You have earned 100 experience points, and 2 movement points.)
You raise a level!! Your gain is: 13/816 hp, 11/511 m, 9/724 mv 2/2 prac.
You failed to complete the quest by level 35.

Seems buggy.

Not sure why you think this is a bug? You need to complete the quest by level 35, and you didn't. Sorry man, you took too long to cross the finish line. (The finish line here would be getting back to the quest giver with all objectives complete before turning level 36.)

Or is it telling you that you failed every time you level for the rest of your career? That would be a bug. I'll have a look at that if that is the case.