I'm not sure about the Master Quest, but I can confirm, that the AI is able to cast the Spell of Making.
Also, Relias had Curgen's Hammer in one of my Beta 4 games, so the AI is definitely capable of going on quests. I'm just not sure, if he got it from the Arena quest or the Master Quest. Why is it possible to get this unique weapon twice, anyhow? More importantly, however, is the question of how he got it. Relias was just level 9 and had a couple pieces of leather armor and a battle axe. I could easily crush him and I wasn't even near the power level of a single Obsidian Golem.