I am not certain if its a bug, but I was able to complete this quest without actually turning in the warg to the wolfmaster. Basically, after placing the muzzle on the warg, I was en route back to the wolfmmaster when I was attacked by "pop mobs" through the area. Like a good "little" wolfie, the warg protected me by fighting off the mobs as I was running through the zone back to Somborn.
Unfortunately, the warg did not survive. So I thought I would have to get another muzzle and do it again, but when I got back to the wolfmaster, I got the credit for the quest. Very strange ....