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Was super disappointed, wished he could create some awesome gear
In Act 2, Dammon will make a second improvement (or both improvements, if you didn't do one in Act 1). Dammon will also make three pieces of "flawed helldusk" gear. (There is what seems to be a bug if you choose the option "I found this metal in a place called Grymforge" -- if you use that option, Dammon will make the armor without subtracting any iron from your inventory.)
If you don't do them in Act 1 or Act 2, I believe you can still do them in Act 3. However, I can't confirm this as I have already done all the Dammon stuff in Act 2.
Which act are you in?
Also, Karlach must be in your party of four when you talk with Dammon if you want her heart to be fixed.
There is no "option" for this. What happens is that when you approach Dammon with the iron and with Karlach, you get a cutscene where Karlach takes over and starts talking to Dammon about it. Eventually you get asked whether to give the go-ahead for it.
Are you *sure* you had the iron in your inventory? And was Karlach close to Dammon? Double check both of those things.
The other thing you might need to do is talk with Karlach and get her to say that she wants you to find an infernal mechanic.
Also, have you dealt with the paladins of Tyr yet? I think the "infernal mechanic" quest actually triggers as a result of the paladins quest being resolved.
"Not that long ago" what you experience is a common mod issue. Most mod users have already fixed it. In doubt: consult the mods authors.
There must be cut content and nerfing, because there is also enriched infernal iron that seems to have the same purpose as rope (nothing).
NOTE: You also can give Dammon the (cursed) devilfoil masks and he will make Orthon explosive grenades for you.
Because it seems like 90% of the major issues people encounter trace back to bugs.
( Do pay attention to the words "SEEMS LIKE" before you angry-reply )