That's not much of an example. If they were not capable of advancing in level at all, then the Captains and Lieutenants would be level 0 still. At some point they were capable of gaining experience and advancing in level, but for game balance reasons, Gygax halted them at the level they had already progressed to. Also, what happens if the PC makes the 7th level Captain a henchman? Henchman can gain levels and advance, yet the NPC is still also a mercenary Captain which cannot gain levels an advance. Will he or won't he be able to gain experience again?
It's an example from the published rules of AD&D. It's completely workable. You can tell whatever story you want to about how the 4th level mercenary captain worked his/her way up from the ranks, or was trained at the King's court, or whatever other fiction takes your fancy. You can even have the captain improve his/her command ability if you want - the point of the "incapable of working upwards" rule is to prevent the mercenary captain being used as a hencman, taken on adventures and thereby improving in class ability.
I think the answer to your "captain as henchman" question is trivially obvious, but at the moment I'll leave it as something for the interested reader to resolve. A more interesting question is whether a PC or henchman fighter enjoys the command abilities of a NPC captain if appointed to such a role. The rules don't tell us. I would suggest that they do, but that's an extrapolation from the rules, not an interpretation of them.
It's a white room scenario pemerton. Knocking out the 20 goblins killing the townsfolk does nothing as the will just get back up and kill more. What is the party going to do? Leave them out in the middle of the forest to wake back up? It's not feasible to carry them to town. Carrying them to town will just result in the town killing them anyway, which will introduce the fighter to meting out death indirectly.
I gave an actual play example upthread (from a different system, but no different in principle in this respect). [MENTION=23935]Nagol[/MENTION] gave an example. I can't remember the colours of the walls where I was playing, and don't know about Nagol's case, but white paint or not these are reports of actual play.
As far as the goblins are concerned: (i) why is it not feasible to take them to town? (ii) where do the rules say that they will be killed in the town? (iii) handing someone over to someone else who then murders them typically is not a case of meting out death? (iv) why can't the PCs take an oath from the goblins to renounce their evil ways (thats what the PCs in my 4e game did on more than one occasion)?
You seem to have an incredibly narrow conception of what is possible - presumably you think most of the above is house ruling, but I don't know where in the rulebooks you're taking your narrow conception from.
In the game the PC has already hit and killed the opponent. Then, AFTER the player has found out that fact, the player can suddenly have the PC time travel back to before damage was rolled and decide to knock out the opponent.
No. At the table the player learns that the result of the resolution is reducing the foe to zero hp. The player decides that the foe falls unconscious. In the fiction, the foe falls unconscious.
Do you apply your "time travel" interpretation to the 5e shield spell, so that it can't protect against the triggering attack?
This assumes the townsfolk will kill them. Of course, the other most likely option - slavery or servitude - isn't much better...
Why not? Most moral and legal system don't treat death and servitude as equivalent fates.