Goblins doing Spellguard sewer quest, ((The one with all the spiders)) is this okay?

Or more generally, is it okay for goblins to do quests in upper that require a NPC conversation

No, it is not. Monsterous races should not ever be in upper to interact with NPCs in any way, shape, or form without a DM present to appropriately kill said monsters.

Goblins et al for the most part are -not- welcome in Upper, and are kill on sight. 99% of the NPCs would run for the watch and or kill the gobs on sight.

Confirmed.