You must obtain a Droag Carcass. After killing a Droag you will get a quest reward of a Droag Carcass. Non-Skeletal Droags will update this step.
Throw the Droag Carcass (by using it) near a corpse candle (this can be done with stealth/invis). NOTE: If you place the droag corpse too far away from the corpse candle and the candle does not respond, simply attack the corpse candle and it will then move towards where you are standing and transform itself.
Wait a minute for the Corpse Candle to turn in to a Sated Corpse Candle. After it turns in to a Sated Corpse Candle (non-agro) use the Catalogue Creature ability to Catalogue it. The bug with this quest is now fixed.