To complete the Forge of the Nymphs quest, you must combine the Round Shield with the Old Knight's Memento in the aforementioned forge. To do this, travel south of the place where you fought Peeping Tom until you reach the Forge of the Nymphs area (which is announced by subtitles when you enter it). Find the forge, stand on the stone circle in it, press space, place each item in the appropriate slot, and craft. As far as I know, the only way to render a forge quest uncompletable is to sell or drop a required unique item. If you sold or lost the Old Knight's Memento, you're out of luck. However, the Round Shield is easily replaceable. If you cannot complete the quest, the game will be harder to finish, as the product, the Warrior's Shield, is very helpful, and must be upgraded to fulfill two additional quests.