Well, part of the problem is that lack of clear documentation on how the quest is supposed to work. It's assigned to a unit, when there doesn't seem like a clear reason for it to be. It fails if that unit is destroyed without mentioning that as a fail condition. It also fails if you upgrade the unit, which is also not mentioned as a fail condition. More specifically, it'll fail if you upgrade the unit to another unit type that still matches the types allowed for the quest.
I must admit that I was misled by the thread in the bugs forum. I hadn't read the full thread, so going by the title, I assumed it refered to this issue, when instead it refered to Industrialism vs Industrial Era. So it might be possible this is a "works as intended" situation, just without the corresponding documentation.
On the other hand, I still don't think you should fail quests if you upgrade the unit, unless the quest is tied to a particular unit type. For example, the farm bandits quest where you "dispatch troops" to guard the farm - and you end up with a unit that can't move for 2 turns. It doesn't make sense that if you upgrade that unit, that would "fail" the guarding. At least, it doesn't to me.
Anyway, this one probably requires a bit more thought (it'd be nice to know what the original intentions for this event were, and whether the unit requirement is an oversight, or deliberate).
Bh