As topic;
today I got stuck in a corner and the dog was blocking it. I stood there for over 15 minutes trying to figure out what best to do, and in the end it became a mess of the dog attacking and having to trip traps to escape.
If the dog moved everyo once in a while, being cornered wouldn't be a concern.
It does move unless it hears something, then it moves to that place in attempt to make a spot check.
Clearly the gaurd dog heard you. Guess you have to kill it then. Its part of the challange I belive.
Quest is working as intended.