With challenge version of Captain TwoShanks, there is a curse where you are supposed to cure the corresponding race to what it reads in the description. This curse seems to break if you have a freeblood in your group, and reads vampire instead. If you cure the freeblood, or any other player in the group, or let it expire, it all results in a wipe. Someone said that fae may also be effected by this bug, but that is just hearsay on my part.
Can confirm, both Arasai and Fae display "Fae_Dark" and "Fae_Light" respectively. Curing Arasai for Fae_Dark works fine, Fae_Light wipes you.
I haven’t been able to reproduce this. It shows vampire and curing freeblood works. Same with fae for fae_light and arasai for fae_dark. I did correct the spelling for the next update, however. Reportedly this has happened with kerra and ratonga where those affected had to relog to get the trigger to work, so that might be a workaround here. I will keep digging in the meantime.
Okay I finally found the issue! It wasn't ignoring your illusion when the spell was cured. So this would happen to anyone regardless of race, if you have an illusion that changes your race appearance. If you run this before the next update, just cancel any race appearance illusions before you fight challenge Captain Twoshanks and you should be good.