The Wand of Wonder is not related to any quests.
It is just meant to be kind of a fun thing. I initially gave it to Yoshimo (as it can be used by any class) and had a lot of fun with it. I'd have him sneak up on people and use it on them. Here's some of the effects that occured:
- Petrification on target
- Haste on target (or me)
- Slow on target (or me)
- Magic missile on target
- Polymorph target (or me)[/list]
There were some others as well, but I cannot remember them all. It was just kind of a fun thing for me. If you scared to use it, then I'd say sell it as you can apparently get some change for it... 
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Now where did I leave that doughnut?!