How can I lay moulding around this ceiling protrusion?
You might not have to create a fully vertical face to apply your crown. Crown molding is usually either 38 or 45 degrees (with some exceptions, so make sure and check) and it looks like the wall angle is greater than that so all you need to do is create a flat spot for the foot of the crown to land on. Here's a drawing:



I wouldn't recommend 1/4 round because it always looks like you're trying to fix a mistake and it shows all the inconsistencies in the wall/ceiling. Hope this helps.