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Background
This quest's completion is mutually exclusive with
At a Crossroads: Scoia'tael. Dandelion will be able to tell you that Roche's plotting something against Loredo, right after finishing the main quest
Where is Triss Merigold?. Also, depending on which side you support, Act II will be much different.
Walkthrough
When Dandelion and Zoltan come to you at
#1, you'll learn that both sides (Roche's Blue Stripes and Scoia'tael) have further plans for Flotsam. Dandelion, who is Roche's informant, will tell you to talk things over with Roche about removing Loredo and sailing away from Flotsam.
Once you find Roche in their base of operations in the house (
#2) next to the tavern. If you gave the sword to Iorveth, he'll rant a bit, and then you'll move onto discussing a plan what to do with Loredo. You'll learn that Loredo has a merchant guest from Kaedwen, and that Loredo is sentenced to death. Now you'll have to make a decision either to go with Roche or with the Scoia'tael.
If you decide to go with Roche, you'll complete this quest and earn 50 experience points. The other quest is automatically failed (
At a Crossroads: Scoia'tael) and you'll receive a new quest
Death to the Traitor!.
1 - Dandelion
2 - The Blue Stripes & Roche