I have made it to chapter 3, and I have kept Sharwyn in my company the entire game. I have completed both of the quests for her in the previous chapters, and I have leveled up to the point where she should complete her tale about the Elf. However, the dialog option to continue the tale is no longer on the screen. I tried to reload the game repeatedly, even reverting to a previous save to see if it happened earlier. It seems that immediately after the second time I talk to her, the dialog option disappears completely. Are there any fixes to this issue?

I have also just gotten the item needed to complete her quest in Chapter 3. The dialog option still does not show up.

Probably your character's level is too low and it must level up before the tale continues.

Level requirements for your character are as follows:

Chapter 1
2nd part of dialogue - L.5
3rd part of dialogue - L.6
Chapter 2
2nd part of dialogue - L.9
3rd part of dialogue - L.10
Chapter 3
2nd part of dialogue - L.14
3rd part of dialogue - L.15

I am at level 15 now, so the dialog should come up.

Maybe i have to level even higher?

I don't think so. One more thing - do you have Sharwyn's Belt in your inventory? The quest item is not enough to finish the tale.

Just checked and apparently i dont. I know i didn't sell it because i tried to once before and the game wouldn't let me. Is there a way to get it back?

You can try searching around to see if maybe you left it laying around somewhere in Chapter 3. If you left it behind in an earlier chapter, you're out of luck unless you use a cheat to spawn it.

Here's an explanation on how to spawn the item; I found this section in a guide on GameFaqs (it isn't my work). Specific FAQ link: http://www.gamefaqs.com/pc/188666-neverwinter-nights/faqs/24467

*********************************************************
To spawn an item, open an existing game or start a new one. Now, inside the
game, press the ~ or ` key, which will bring up a text window marked by a > in
the upperleft-hand corner of the screen. Now, type in (everything typed is Case
Sensitive):

DebugMode 1
to activate the Debug Mode

Now you can access a number of codes, most of them listed by pressing the Tab
key while in the > text window. The code to create an item is:

dm_spawnitem "xxxxxxxx" (don't use quotation marks)
the x's being the item's "Blueprint ResRef" mentioned in the Introduction.

I.E. - Say you wanted to give your character a Full Plate. You would press ~ or
` to bring up the text window, type in DebugMode 1 to activate DebugMode. Then
press ~ or ` again and type in: dm_spawn item nw_aarcl007. The Full Plate will
now spawn on the ground wherever your cursor is placed.

*IMPORTANT*
You must have DebugMode enabled, the most recent patch, and your cursor must be
somewhere where the item can be placed on the ground in order for dm_spawnitem
to work!

Once you're done with everything you need, type in:

DebugMode 0
to deactivate the Debug Mode.
*********************************************************

[Back to me]
If you've finished chapter two and gotten her belt from there, then this is the item code I think you need: nw_hen_sha2rw

So, in summary, use ~ to access the console for each line, then type in the following lines and hit Enter after each:
***************
DebugMode 1

dm_spawnitem nw_hen_sha2rw

DebugMode 0
***************

The lines are case sensitive. The first will turn on debug/cheat mode. The second spawns the item you want (make sure your cursor is over some open, accessible ground when you enter the code). The third turns debug/cheat mode off again.

Ditto - I couldn't explain it better than Bookwyrm627 did.

Tried it and it didn't work. I got the belt, but she still wont talk to me about it.

o.O

Quick checklist of everything I can think of that you need:
-Her contract item
-The item she gives you for completing her tale in the previous chapter
-You being a high enough level
-Don't be a jerk to her

Ideas you can try:
-If she joins you as a follower, then you should already have her contract in your inv.
-Try holding one of her gift items at a time, and try holding each of them in turn.
-Try leveling yourself up again. You can test it with the debug mode (save, add a level to yourself, and see if that works).
-See if she can level up; if so, have her do it.
-I have no idea how forgiving Sharwyn is if you say something rude to her. With Aribeth at least, asking to sleep with her (Aribeth) is an excellent way to break the friendship/romance right in half and stop it. So maybe you said something wrong?

Beyond this, I'm out of ideas. I guess you could always try reloading to a previous save, if you have one.

I have her contract, so i'm kind of confused. I think I can't do it because I didn't have her item with me when talking to her for the second time.

You probably need to reset some variable on her. Try the following:

Press ~ or ` (whichever worked) and type

DebugMode 1

dm_setvarint NW_L_HENSTORYC3 0

When your cursor changes to target mode, click on Sharwyn.

Then be sure to close DebugMode by typing:

~ or ` (whichever worked) and then

DebugMode 0