Hopefully someone else finds this useful if they run into the same bug / issue.
I was unable to complete the Sheep Herder quest, even though I had lured the four sheep into the enclosure and incinerated their bones.
I attempted to complete the quest by returning to Councillor Halgrive. Instead of finishing the quest, this dialogue is all that appears:
“Doctor Orbon should have something suitable. You should be able to find him in the chapel just north of here.”
This isn’t what usually happens at this part in the quest. I want to add that I have completed this quest well over 15 times over various accounts within the past two decades!
I went back to the sheep, in case I had missed one? Nope. I was unable to prod any of the four the sheep again, with a message displaying along the lines of ‘I have already done that, there’s no need to do that again’.
THE FIX 
So - what fixed for me was to unequip and drop the protective plague equipment (top and bottoms), and unequip everything else I was wearing. Then return to Dr Orban, buy and equip a new plague suit.
I believe the issue was caused by the game not registering the plague suit as being equipped.
I think this causes Councillor Halgrive’s dialogue to fail to progress.
Some of the reasons I have come up with, which could be the reason the quest reached the state of ‘not progressing’.
When I received the plague suit from Dr Orban:
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I had boots of lightness equipped which were ‘force unequipped’
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I had amulet of ghostspeak equipped - could there be a conflict going on here with ‘layers’ of equipped effects?
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I had a full inventory at the time of receiving the plague suit. Could this cause some sort of input overflow issue?
If this bug happens to you - please let me know! I would be interested to see what caused it for you