I killed Freyedies because he would only give me one suit of dragon armor. Good experience for him and all of his guards. Be ready for a big fight though. I faced 10 guards and the king all at once. I was able to kill them all, but was pretty beat up at the end. You get a key from the king which opens the other 3 vaults plus a hidden chamber off of the throne room. I ended up finding 2 more sets of dragon armor in the plunder so it made it worth it.
I haven't seen any negative consequences from killing him so you should be OK. Good luck.
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