It should have moved from your Quick Item slot into your inventory, that's what happened with me

My inventory was full. I didn't notice it being dropped at the time but I did go back and scour the area in which I used it. Looks like it might have ended up in never, never land.

I got the two pieces of the rift rod and killed the Unseeing Eye. After using the Rod it disappeared and never returned. Now when I talk to the avatar he has nothing to say to me! Any ideas on where the rod went?

Hmm, that's strange, because usually if I'm given a quest item and my inventory is full, it knocks something out of my inventory to make space for the quest item. And even if it dropped it, I would think it should still be on the ground somewhere -- it may just be hard to spot. Did you use it more than once? That may have done something weird also.

I just used it once. It beats the hell outta me. I had a vampire stake disappear from my inventory too which scared me until I relized I only needed three.