I was thinking about my response. The game has become a little more complicated than I originally envisioned. Hopefully the following helps some. This information is largely based on Jan's skills, but also with an eye to his bardic training, and the oral history that incorporates. Do as you wish with this information.
[sblock=Scott DeWar]The tales and legends are full stories of gnolls terrorising the peasants, looting and burning villages, robbing travellers and kidnapping fair maidens; at least until the noble hero of the story came along and vanquished them. Gnolls are used by parents to scare wayward children into obedience. Gnolls are the perfect adversary archetype. Gnolls are savages, fierce fighters of bestial appearance. They are made for the role, no?
Once, gnolls were found across much of the land. Many wars and conflicts were fought between men and gnolls. Mostly mankind was victorious and slowly the gnolls were driven back until the survived only in the mountains that dominate the centre of the land. So it has been for the last few centuries. On occasion, the gnolls have come out of the mountains and waged war on mankind. The guard tower that the party passed on the road was likely as not built during such a conflict in order to protect the boarders and the roads.
There are a few counterpoints to this picture. These stories are less common. There is the legend of the tribe of gnolls that sheltered the children of the Lord Fayr and guided them across the mountains to safety after he was betrayed and overthrown. Lord Fayr is famous for having established peace 'between all of the beasts and man'. The tale of Lord Fayr is a favourite of the romantics, and the notion of peace between man and beast is usually interpreted as just allegory. But just as allegory can be used to illuminate truth, truth can also be hidden in allegory. Then there is Borse, the stout, loyal companion of the gallant knight-errant Sir Hodenfeld. Most tales describe Borse as a 'dog ugly fur clad warrior from the northern lands'. But some versions of the story, less common, describe his as a 'dog-warrior from the northern mountains'. In other words, a gnoll.
So, in all, gnolls may be more than simple savages. But choose your friends carefully perhaps.[/sblock]