I actually hope Redcloak actually kills V, for the sake of tragedy and because I love seeing the elf suffer, but I frankly doubt he'll do it. I'll be quite pleased if he does though.
The beginning was a little too explicit (well, only the mention of "release" really) for my own taste but that's just me being me. I'm not surprised by Xykon's ultimatum; I expected it, and the cliffhanger too. It's just in character (though one could argue him actually allowing Redcloak to let the elf live to be out of character after losing his philactery).