It's not murder. They're the bad guys. They work for the Dragon Cult. Doesn't matter if they're just hired swords. Let them go, they'll just go hire themselves out to the next cult that pays well. I've never been one to think "always showing mercy" is a "Good" trait in these games. Sometimes, showing mercy is just being stupid.
MMmmm.... I suppose that's true, but it's also hypocritical. There is a very very fine line between Adventurer's morality and "bad" NPC's. I mean, I'm not trying to say this guy's a decent human being, but a lot of PC's can't be considered decent human beings either. Lowloe works for a guy called "the Beast" with a terrible reputation, and in turn, they work for the Dragon Cult (also a bad reputation), but what have they done?
(As far as we know): Occupied an abandoned temple. Guarded it. Bought a suit of Armour. Hired some more guards.
You?
You've ambushed some people on the road, killed a few of them, robbed them, taken them prisoner, threatened them, and now are thinking about torturing them. Who's the bad guy?
Don't get me wrong, I like heroic adventure, and this IS one. They ARE the bad guys, and you are right to oppose them. But THEY might not even know that, and I can't see how you would know it either.
Just philosophy, BTW, not a lecture. Feel totally free not to agree with me, it's all theory.
EDIT to add: Oh, and before I go making myself unclear: I don't care what you do. I'm the kind of DM that puts problems before the players with no idea what the solution might be. Do what you like.