Speak with Xilania Nevagon ( -496, 46, 271 ) Copy/waypoint -496, 46, 271 near the Combine Spires in Greater Faydark to begin the quest. She will give you a Shrumbler Net (inventory item).
Use the Shrumbler Net from your inventory (right-click > Use) to capture the hatchling. You'll need to get pretty close for it to work. You will receive "a captured shrumbler hatchling" in your inventory.
Find a sandsponge:
Harvest a shiftless sandsponge ( -346, -71, -762 ) Copy/waypoint -346, -71, -762 -- but found all along the coast) in the sea to the east of The Nursery.
Kill the sandsponge (level 55 solo mob) that spawns on the sea floor and attacks you.
Pick up (right-click > Pick up) the shrumbler hatchling (NPC) that spawns at its corpse.
Catch a spirit bud:
Release the shrumbler hatchling from your inventory (right-click > Release) near the front of the Nursery (this is the actual fae newbie area, The Nursery, not the hatchling nursery in the cave. Approx ( -122, -51, -735 ) Copy/waypoint -122, -51, -735
Follow it (so that you don't lose it!) while it wanders the area for about a minute and "swallows" a spirit bud.
[Note: If your frustrated shrumbler hatchling becomes "bugged" and does not offer the "Gut it" option for the quest update, you can return to the shrumbler caves and reuse the Shrumbler Net to capture a new hatchling; you do not need to delete/restart the quest. Alternatively, wait a few seconds and it may return to the point at which you dropped it originally after which the "Gut it" option may function.]
Return to Xilania Nevagon to complete the quest and claim your reward.