An important thing your party needs to know is that this quest needs to be done before going to rescue Thrall. To find him, make a right from the cave till you hit the road then turn left. You will see him on his mount escorted by his pet. This of course means you will not be taking the dragon flight express straight to Durnholde Keep if you have this quest.
I tried doing this quest after helping Thrall first and ended up searching in vain for an hour. When I reset and came back, there he was causally riding past Hillsbrad. He has 70k health, a mean dog, and a c0cky attitude. He is also annoyingly good at throwing his net.
As for the story line, now that I thought about it, it is actually hilarious because Don Carlos has no idea you can go back in time. Most likely he does not know the Caverns of Time exists. Remember, the quest is not his "instruction", but an "idea" Blizzard puts into your toon's head because your toon just happens to be taking a trip to the past. Poor Don Carlos thought no one would ever bring evidence of his one time defeat.