EDIT: After two hours I figured it out. You need to attack an kill Melandino. After you talk to them they disappear. What happened is that they disappeared down INTO the hill side. So you can't see them. So you have to move your view to see the name peeking out a little bit and then use the Skill Target Enemy in order to attack and kill them.
Edited by onicdesigns, 05 September 2011 - 10:34 PM.