Head over to Skyloft and speak with Parrow in the plaza near the Light Tower. He’ll mention that Strich found an island inside the Thunderhead that could serve as a bug paradise.
Fly to the Thunderhead and go inside. Head to the southwestern portion to the large island with the crumbling tower, Bug Rock. Speak with Strich there. Play Bug Heaven if you want – that’s not part of this.
Return to Skyloft and get into Beedle’s Airshop. Sleep in his bed until night to awaken docked on Beedle’s Island. Speak with Beedle outside to learn that his rare Horned Colossus Beetle is missing. Tell him you’ll find it for him. Go into the shop and sleep until morning.
Upon awakening, leave the shop and fly back to Bug Rock. Strich there has Beedle’s beetle, but will not return it … unless you can catch ten bugs in three minutes. (See why I recommended the big Bug Net yet?)
Once you succeed, you’ll receive Beedle’s Beetle Cage. Return to Skyloft and head into Beedle’s Airshop. Speak with him, go to sleep in the shop until night, then exit the Airshop to be back on Beedle’s Island. Speak with him for your nice reward. (I mean, considering how some items are 1,000+ Rupees…)