Waterlogged letter for the Sully Balloo quest is bugged and keeps saying “That is already being used” even though there are no other players around. I have found a couple of other people on the forums reporting this exact issue for the last couple of months, but there appears to be no resolution yet.
Logging out and logging in caused the letter to despawn, and when it respawned I was able to pick it up. This apparently is not the case for everyone, though, according to one of the forum posts I read.