I summoned a banker on the Morrowind boat and equipped armor and a resto staff. When I spawned into the cell and chose to fight Naryu my staff was equipped. When she's stunned and you're supposed to follow up with a heavy hit it doesn't register. The game will stay in this state. If you log off and back in you will immediately take aggro from her and the process starts again.

I was able to solve the problem by leading her into the cell and fighting her until she was stunned then run up to the second floor attic and force quit the game. When I logged back in I was far enough away from her to not take aggro and was able to uneqip the staff and fight her unarmed.

I don't have a banker on my PC account so I wasn't able to do this during the Beta or I would have reported it then. Sorry ZOX. This beta monkey has failed you.