It's been a long time, so take my memories with a grain of salt, but as I remember it the trivial loot code only applied to loot. Quests were "protected" by the TLC because the items the quests needed were TLC items, but I don't remember NPCs rejecting turn-ins because of your level.
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Loramin Frostseer <Anonymous>, Hetch<Anonymous>, Tecla <Kingdom>, ...
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