I actually figured it out. There is still the issue of the Icarius being the only fish I could catch at the Lake when the quest is active. However I caught one at the river behind the fisherman's house and it progressed. I couldn't find the fishing location previously as the area to click on was very small (maybe expand the button to include the river as well). I think the confusion came from the quest name being "The Forest Lake", which makes you think that you are supposed to catch the fish at the forest Lake, a clearer quest instruction in the journal could also help.