The creature who drops the quest item for this particular quest does indeed respawn. The interval is fairly large, as it is for most creatures that drop quest items. However, what the quest asks for and the floaty label of the creature who drops it may cause some confusion.
The Seilwood Witch does indeed mention Blood. This reference is a bit out of date.
Conversation updated to better reflect the state of things in both cases.
Tweaked in next update.