I have question - i red somewhere that after second nightmare i can return the gem to lizards, but there isnt that option, so i keep throwing it away during nightmare 3
I had this option instantly. Second nightmare, I had to toss the gem away, got info from the demon and woke up. In the ruins when I approached Roushk, firstly I had to choose what to do - give the gem back or keep it to myself, and after the choice starts the dialogue with Roushk and Othra (that leads to a great feast for everyone).