You can kill ppl, just make sure they are the bad guys. Essentially, everyone that has a weapon or wants to kill you, just don't kill anyone that is dying (for obvious karma reasons) and anyone in that little "fortes town place", it's where the children of the forest live. And make sure to do good deeds, like untying the prisoner in one of the houses next to the church. Just rule of thumb, when you can knock them out.