If you fail, he charges you 1000 Gil. There are several different outcomes, depending on your answer:
Skyserpent: I see the symbol of the Skyserpent. It suggests spending some time away from battle. For a change of pace, why not try your hand at harvesting in the Wajaom Woodlands or Bhaflau Thickets? You may make an unexpected discovery.
Flameserpent: "I see the symbol of the Flameserpent. It suggests you take an aggresive stance and not shy away from a challenge. Perhaps you might try visiting the Commission Angency. A substantial reward could be yours for the taking."
Galeserpent: "I see the symbol of the Galeserpent. It suggests a loss in the near future... Even I cannot predict what this loss may entail.You would do well to pay close attention to your possessions."
Stoneserpent: "I see the symbol of the Stoneserpent. It suggests you will receive a boon from the earth. A boon from the earth...? Ah yes, a stint at mining may prove beneficial. All signs point towards Mount Zhayolm..."
Springserpent: "I see the symbol of the Springserpent. It suggests a sojourn to the sea. Yes, a tranquil journey on the waves. Replace your weapon with a fishing pole and fate will smile upon you."
If you succeed, he talks about 5 serpents and asks for one of three items, thus starting the quest. Initially he doesn't name them, just describes them.
"Sky, Flame, Gale, Stone, and Spring. I see all five serpent symbols... This sign heralds a turning point in your destiny."
If you somehow get disconnected before paying the 1000 gil (if you fail), when you get back you can start all over whithout having to waiting one game day to try again.
Dangruf Stone: "The treasure I would have you seek is a precious stone. It is said to be as red as blood and found in a land of geysers."
Valkurm Sunsand: "The treasure I would have you seek is a pinch of golden sand. It is said to glow with the light of the sun and be found only on a certain beach."
Siren's Tear: "The treasure I would have you seek is a jewel. It is said to glow with a bluish tint and be found near the bank of a certain river."
Talk to Waoud again at least one game day later and agree to help, answering that his words have moved you to help him. (You must have zoned to trigger this cutscene)
Trade the requested item to him; he tells you to take it somewhere else.
Head down to the first large room and fall off a ledge into a room with diremites. These can and will agro by sound. Immediately to the left, there's a steep ramp that leads down to a spot with leeches, and a large pool in the center that looks like a Teleporter (H-9).
Step into the center of the pool for a cutscene. (You must have the requested item in your inventory for it to activate, however you will retain the item after the quest has been completed.)
Answer "yes" to both questions.
If for some reason you answer no three times (don't take his hand, no regrets, none!), your memory will be erased of the quest. You will have to restart the quest from the beginning in order to become a Blue Mage.
There is a rare treasure in the "Middle Lands" that Waoud needs someone to obtain for him...
The answers marked in bold seem to be the most "Blue Mage" sounding answers, which also resulted in several cases of success. However, others have tried this same pattern to no avail. It is also possible that an individual's in-game accomplishments may have some influence on what are the "correct" answers. See the talk page for more details/experiences.
What is destiny?
One forges for oneself
Does the accomplishment of a goal require sacrifice and hardship?
Not if you think hard enough.
You hold in your hands a forbidden scroll. Reading it will bring you untold wisdom, but cost all that you own.
Read the scroll?
Throw the scroll away?
Burn the scroll?
If the loss of one life would save ten thousand, would you offer yourself without hesitation?
I have no such courage.
Would you choose a tumultuous life where fame or fortune were attainable, or a tranquil life where both were forever beyond your reach?
A chaotic life.
A tranquil life.
A mix of both.
You stand on the precipice between life and death. Would you choose to live life as a beast if it would save you from falling into the shadowy abyss of the underworld?
If it keeps me from dying...
Fall, and keep my humanity.
Embrace life as a beast.
A companion in battle turns against you, raising a weapon to attack.
Brace for the blow?
Try to reason with him?
Cut him down?
A loved one is afflicted with a terrible illness and has little time left to live. You are asked to end that life by your own hand.
Seek a cure?
Leave the world together?
Grant the request?
You are in the midst of a fierce battle. The enemy lying at your feet was once a friend. His breath is ragged and weak.
Tend to his wounds?
End his pain?
Ignore your old friend?
A superior to whom you owe a great debt orders you to act in a way that violates your sense of justice.
Try to remove him from power?
Carry out the order?
Follow your sense of justice?
SPOILER WARNING: Click here for additional details about this story line.