They said that quest progress would not be lost.
See, if it WERE it would be possible to, break it for people, like...
If memory serves me well, you deliver the double-melded item to the NPC, get the Unfinished weapon, and the quest updates telling you to do something else. If the quest reset (since it's just one quest, not multiple ones) come 2.0 you'd have to give ANOTHER double-melded weapon for him or, hell, if there is a step after defeating Garuda and Ifrit and you had already done that, you'd have to do it AGAIN.

It is unrelated to what is in your inventory, loosing quest progression, but related to the entire quest chain returning to the first.