Right, I have been punching Hroldar for so long I have raised my hand-to-hand skill from 8 to 28 and probably given myself repetitive strain injury into the bargain.

It seems to ABSOLUTELY no difference however... I'm obviously still in combat with him, as there is a yellow bar when I punch him and when I move away the game tells me I am in combat, but his health doesn't drop.

Am I doing something wrong? Does it just take time? What h2h skill do you need for heaven's sake????!!!11//1/1/1???

First of all, hitting with Hand-to-Hand doesn't damage health, it damages fatigue.
And that is what you need to do to progress. You need to get his fatigue really low.

If Hand-to-Hand is not working, you can also use Damage (or Drain) Fatigue spells or scrolls.

You can just kill him also. But Falco will not be happy with you. (but the quest will still count as completed)

Another choice if you are getting very annoyed, is to just use the console to set your Hand-to-Hand skill at 100. Knock him out, then set it back to what it was originally.

You're actually not trying to drop his health--you're trying to drop his fatigue. Which, if I remember correctly, does not have any visible "bar" for you to see. You just need to keep hitting him until he falls down, or cast a drain fatigue spell on him--that'll work too.

Edit: Whoops, ninja'd. That's what I get for taking so long.

Heh lol - I did it in the end, used the belt of knuck-knuck and a ring as well!
Eventually dropped him and got my hand to hand up to 30-smething to boot!!