Any downside to pick-pocketing characters in the Ragged Flagon

So I tested @Mr Smooth's recommendation and it is indeed true.

If you have been caught, then you need to trigger a load* by doing a large zone transition. A small one (such as going from the ragged flagoon to the ratway) was not enough to cause the flag to be reset. However, transitioning from the cistern to Solitude was enough to cause the reset and I was able to immediately attempt to steal again.

In short, if you are in a town with a gate, then exit the town and go back in. Simply going into a house in the town is probably not enough to reset the flag. If you are not in a gated town, just fast travel to somewhere far enough that requires a load.

There are a few possibilities here, according to the uesp entry on the quest

The trigger may take some time as you'll have to wait for the woman to be murdered. Personally I came across the scene in the day time while passing through the area, I did not wait in the graveyard (that may cause the murder to not trigger).

You can also try to trigger the quest by purchasing the house from Jorleif during the stormcloak rebellion quest line.

However, it is known (see the glitches section in the entry) that the quest is bugged and may not start at all, not even via the console. In this case then you are out of luck.