I've encountered a bug in the Xbox 360 version 1.2 of Skyrim.

In Windhelm there's an NPC named "Rolff Stone-Fist" that makes insulting remarks about the dark elves. Using the dialog menu, I bet 100 coin that I could beat him at a fist fight.

Using fists only (not switching to any weapons or magic) I began to fight him, but he pulled out a knife. Almost immediately after he did this I "knocked him out", causing him to crouch onto the ground. However, the option to talk to him never appeared - I couldn't "end" the fight. He stayed on the ground for about 30 seconds, then got back up with full health and fought me again with the knife. Each time I would defeat him, the cycle would repeat.

I had to go back to my last save and reload due to the issue.

I discovered how to reproduce the issue. After placing the bet with Rolff, the conversation menu disappears and the player's character raises their fits to fight, in combat mode.

However, there's a brief second or two before Rolff takes your 100 gold and raises his fists. If you punch him in this one-second gap, the game goes into a broken/mixed state where the fist-fight starts, but Rolff treats you as a regular combat threat - hence why he pulls the knife.