You need Illithium to upgrade the mace of disruption, right?
What will happen to the Sir Sarles quest if I use the required Illithium to upgrade the mace? Can I still finish his quest?
Or, is there another way around?

Yes. Go back to the ore merchant and buy the fake illithium. Go to Sarles, but drop the real illithium before you talk to him. He will be upset, but don't worry. Pick up the real illithium and go back to the temple and talk to the quest giver. He will think the fake illithium is actually Sarle's work and give you credit!! Then you can use the real ore to upgrade your mace.

I missed out on this, but read an earlier post about it. I don't remember who wrote it.

The +2 version of the Mace of Disruption is one of the more useful weapons in the game. The +2 version's best feature is its Level Drain immunity. Arm Minsc (or anyone else) with the +2 MoD and and the Shield of Harmony, you have your own kick-ass Vampire Slayer!!! Bohdi, beware!!! Minsc will give you a butt-kicking for goodness that you will never forget!!!