Ok. I have played this quest 14 times and only once did it actually let me choose a legendary trait to replace a fatal flaw. I'm trying for the legendary trait achievement. I've seen this quest so many times that I memorized one of the riddles.

Alive without breath; as cold as death; never thirsting, ever drinking; clad in mail; never clinking.

I finally realized today that its a quote from the Lord of the Rings, book four, chapter II.

I may never get the quest to work; but at least I discovered something amusing.

If you have Shimrods legendary trait mod, it will stop the quest given traits from working properly (you either won't be offered them, will be offered them but won't be given it, and selecting them in CAS doesn't count towards the achievement), I keep meaning to remove this mod so I can get that achievement too.