In the No One Escapes Cidhna Mine quest, I looted the note off Madanach and read it before killing him. Now the game doesn't register when I read the note. The quest entry which states I must read it is not completed and when I go outside the mine, Thonar attacks me and he cannot die, he just staggers and revives.

The bug is a real game breaker, since all of my gear was removed when I was jailed and I need to interact with Thonar to get it back. I could just complete the quest via the console, but that would mean all my gear is lost.
The only save games I have, are either autos from after I pickpocket and killed Madanach or manuals from 10+ hours of gameplay back.

Update 1.2 does not fix this bug.

Try putting the note back in his corpse, then picking it back up again. If it says you can't drop the item because it's a quest item, try using this console command to drop it:

dropitem 000E2513 1

Then you just manually pick it back up and it should register it now.

Tried putting the note back on his corpse, picked it up again, read it, nothing.
And there is no such command as dropitem, the command is player.drop Anyway, that doesn't help either. Problem is not registering that I picked up the note, it's the reading of the note.

Hate to say it, but reload to an earlier save and redo the quest. Otherwise, ignore it (Im not far enough in the game to know if thats a necessary quest, sorry). A minor glitch like this is way down on the priority list when 90% of people would kill him, then read the note. Bethesda probably wont get to it for months, unless, of course, it's a superimportantcantlivewithout quest, in which case, do something else for a while and patch'll be here in no time.

I'd be perfectly happy to simply do a 'complete quest instantly'-command in the console and move on... if it wasn't for the fact that I'm missing all my gear, and the only way get it back is to complete the quest properly. This must be the only quest in the game where all your gear is removed and it being bugged makes it a total gamebreaker for me. And my last save where I'm not stuck in bug-land is a manual save from 10+ hours back. Shame on me for not saving more regularly, you might say, but I don't go into games with the expectation that I have to save every 15 minutes or my game will be ruined by sloppy programming. Well, maybe with Bethesda games, I should...

I can't post complete details (on phone), but you can look up the quest stages on uesp.net. Look up the quest, find the appropriate stage at the bottom of the page, then in the console type:

setstage ms01 stagenum

Where stagenum is the correct number. Also confirm that ms01 is the correct quest id.

Already tried that. Used setstage ms02 (that's the correct number for No One Escapes Cidhna Mine) together with every stage number from http://www.uesp.net/wiki/Skyrim:No_One_Escapes_Cidhna_Mine
Nothing works. The "Read Madanach's note" cannot be completed. Using setstage ms02 210 does nothing, since I already have it assigned. I've even tried going the other route and activating the quest points where I let Madanach live, so I could just complete the damned quest. But when I revive him, he just attacks me, and I can't make him become neutralized.

Try doing the command console resurrect on him. Kill him again, then read it! Just a thought? >.>

Like everything else, already tried it. Zero effect.

Simple fact is that reading the note does not register. No amount of killing, resurrecting, placing the note on his corpse, dropping the note, deleting and restoring the note, using setstage ms02 xxx or any other console command or doing anything whatsoever changes that.

I'd just find the code to complete the quest and move on. It svcks but it's better than being stuck