From the FAQ...
When falling down to zero life point and being brought back to life with the Grail, must you give back all your White cards?
A dying Knight drinking from the Grail is immediately revitalized back to 4 Life points, and keeps his white cards. His turn ends immediately however,and he does not share in the spoils of victory, if he had sacrificed his last point to help finish the Quest!
In the rare case where a Knight would be dying as he plays the Lady of the Lake while no one is present on the Excalibur Quest, the player who gives him the Holy Grail to drink from is the one who would then receive the Excalibur sword. If that Knight happens to be the dying one (ie if he was the one in possession of the Holy Grail), then he gets to keep Excalibur for himself when winning that Quest.
My question is does the knight that died return to Camelot with the rest of the knights or does he stay at the quest?
Since there is no mention of it I would assume he returns with them even though he receives no quest reward and his turn ends.
I think he'd return. The quest is over - even if it's one of the quests that happens over and over, that particular quest has ended.
For another example, think of the Excalibur quest. The knight has to return after the quest is done, because the quest board disappears!