So this guy has a pretty sweet stiletto.... but i can't kill him - after he gets bloodied he just disappears in a scripted scene....is there a way later in the game to kill him or get this weapon? It also has insane enchantments...

Maybe you can try to one-shot him with an assassin of your own? 

You go to the exit he took into the narrows and you get options to follow him. After you corner him, combat resumes.

That is one damn fine stiletto he has, too bad dot is bugged and breaks rogue's invisibility. When it's fixed it will be a prime weapon with other rogue's dot abilities.