I am in the middle of 'No One Escapes Cidhna Mine'. I want to side with Thonar, for no real reason other than getting the smithing ring. I have my skiv, and I've gotten past Borkul (I have 2 of his keys, one from pickpocket and the other because he let me in through persuade). I have tried to pickpocket Madanach, but the only thing in his possession is Madanach's Note and a bottle of Skooma. Where is the Key?

I have also tried to kill him about a dozen times using various methods - back stab with skiv, using both skiv and pickaxe as weapons, using combinations of magic (Left hand) and Skiv (right hand) coupling with Shouts - Disarm, Elemental Fury, Fire Breath, and Powers - Agent of Strife. Nothing seem to work (I'm lvl 40).

Any suggestions?

As noted http://www.uesp.net/wiki/Skyrim:Madanach%27s_Key#Madanach.27s_Key the key can't be pickpocketed, only obtained through dialogue or after killing Madanach.

Have you tried temporarily lowering the difficulty? That might work, unless you're playing on novice. The only other thing I can think of is to use the Become Ethereal shout, if you have it.

Magical attacks don't work well on Madanach, as he's a Breton, & has some resistance. I usually conjure a weapon & kill him that way. Once I turned into a werewolf & emptied Cidhna Mine in a glorious, if bloody, spree.

Some tips for clearing Cidnha Mine:

-Bound weapons with the mystic binding perk and high relevant weapon skill and perks.

-High alteration skill with mage armor perks and a decent 'skin' spell. Resist magicka is useful since most of the inmates are bretons and may use destruction.

-High restoration skill with Regeneration perk, recovery perks, maybe avoid death perk, and a decent healing spell.

-Lord stone- gives 50 points of armor and 25% magic resistance.

-Werewolf or Vampire lord forms are useful

-Conjure minions to fight for you.

-Shouts can help give you an edge. Example: Unrelenting force can knock down some opponents while you engage the others, or knock 'em down and finish 'em off.

-you can also cheat a bit and have quest item weapons, shields, and apparel equipped/favorited when you are imprisoned. Quest tiems aren't confiscated, so you can go in armed.