[Honclbrif]

The following three step one pot transformation has been reported in fair to good yields. Propose a mechanism to account for the observed product. For the purposes of the mechanism, assume that no reagent greatly exceeds 1 equivalent.

[Rory]

Let me have a try.
Nucleophilic addtion of tBuLi to the isocyano group followed by insertion of the CO gave the acetyllithium which tautomized to a carbene. Then 6 pi electrocyclization to form a more stable lithium enolate and subsequent [1,5]-sigmatropic alkyl migration to achieve rearomatization, delievered the 3-H indole derivative which was methylated to furnish the target molecule.

[Honclbrif]

The reaction of carbanions with CO is known to form acyl lithiums, but in this case it does not tautomerize to a carbene.

[Rory]

The reaction of carbanions with CO is known to form acyl lithiums, but in this case it does not tautomerize to a carbene.

When I said the acyl lithium tautomerized to the carbene, I meant the acyl anion resonated to the carbene. Taking the Lithium into account, I must call them tautomers. An alternative pathway is intramolecular Michael addition that would lead to the same enolate, though I prefer the electrocyclization pathway.

[Honclbrif]

I do like the electrocyclization, but the reference I'm consulting claims a pathway with a further intermediate.

[Rory]

I do like the electrocyclization, but the reference I'm consulting claims a pathway with a further intermediate.

Well, actually there were at least 3 possible pathways for this transformation and I posted the one I like most at first. Maybe the answer you want is the one including a ketene intermediate.

[Honclbrif]

That would be the published mechanism.

Orita, Akihiro; Fukudome, Masato; Ohe, Kouichi; Murai, Shinji
Journal of Organic Chemistry,   1994 ,  vol. 59,  # 2   p. 477 - 481

This one came up on our mechanism board a while ago and four different people each got four different pathways, each of them arguing passionately for their own. I figgured this might be a fun one to send to the internet then.

Personally I like the electrocyclization pathway best too, but i figured it would be best to ask for an answer here where I can give a solid reference.

Well done Rory!