This quest starts off in the Vesayan Isles, on MacNiall's Freehold.  The goal of this quest is to make a Bandit's Hilt, which is then used on an existing "light weapon", specifically a Dagger, Simi, Shortsword, Yaoji, or Rapier.  Once applied, the weapon can do double or even triple attacks (dependent on you skill in dagger or sword.) 

  NOTE: THE RESULTANT WEAPON IS NO-DROP NO-GIVE, and there are currently rumors about a long quest timer on the hilt, so make sure you pick a good weapon to attach it to.

Part One: Getting the quest

Go to the Vesayan Isles and find MacNiall the Unruled.  He is located at approximately 74s, 92.3e.  Talk to him and he will tell you this:

  MacNiall the Unruled tells you, "Arrr, and welcome to MacNiall's Freehold. Have ye seen them funny statue things the Mosswarts like to worship? I thinks their eyes is kinda pretty. Bring me one, and I'll see what I can do to reward ye."

Part Two: The Idol Gem

Go to the Idol Spawning Grounds (72.3s, 87.5e).  Make sure you wear Fire protection while you are there, as some of the mosswarts like to use fire-swords on you while their buddies cast a fire debuff on you.  Go down deep into this dungeon  and kill some Dread Idols until you get a Idol Gem. 

Take it back to MacNiall and this is what will happen:

You give MacNiall the Unruled Idol Gem.

  MacNiall the Unruled tells you, "Errukh, look at the sparkle! Look, youngster, I'll give ye this note for my cousin MacDugal. I hear tell he's taken up residence with our old gang at some place called the Bandit Castle. Bring this note to him, and he'll reward ye right.""

MacNiall the Unruled gives you Bandit Cousins' Letter.

Part Three: The Hilt

Now, proceed to The Bandit Castle (66.4n, 50e) where you will find MacDugal inside the upper level of this castle.  Give him the Letter and this will happen:

You give MacDugal Bandit Cousins' Letter.

  MacDugal tells you, "Errukh! A letter from my long-lost cousin, MacNiall! Arrr, it's good to see the old boy doing well! I ought to reward ye for this, as he says. Here then, have one of my blade hilts. I'm workin' on a way to improve daggers and light swords."
MacDugal gives you Unfinished Bandit Blade Hilt.

  MacDugal tells you, "Ye'll need to finish off that hilt with a pommel from the heart of an Iron Golem, but once it's done, ye can just affix it to a dagger, simi, shortsword, yaoji or rapier. They yer blade'll be so well-balanced ye can do a fancy double or triple-strike when ye put enough skill and power into it!"

Finally, go kill some Iron Golems until you get an Iron Golem Heart.  Use the Hilt on the Heart and you got yourself a Bandit Hilt.  Use this hilt on one of the weapons listed back in the beginning and you have a new super-sword!!