Just keep doing it the way you're doing - hide the nasty stuff from the good guys to avoid fights - you DO know, though, that you have to watch your rep - if it reaches 2, the good guys will leave your party. And the neutrals split at rep 1. And by that point you're already going to have a hell of a time dealing with the Cowled Wizards or Knights anyway... though I've heard that they yield a lot of XP if you can manage to waste them every time they show up
I've heard that some players have attempted to exterminate the entire population of Athkatla! Don't know how far you can get but it sounds hilarious. I don't have the heart to kill innocents, personally...