I am Yig's DM. Because it's what I consider his first offense, and because no one IMC is very familiar with the BoED, I decided to give him reprieve and not take away the use of his exalted feat. This once. I gave him a warning that such actions would probably mean the loss of use (at least until atoned) of his exalted feat.
And I then suggested that he posts the situation on ENworld.
The situation is currently happening in Cooperative Dungeon 4 (we're playtesting it), and you can actually go see the adventure itself for reference right here on ENworld:
Of course, Yig, you are absolutely forbidden to go lurk that thread.
http://www.enworld.org/forums/showthread.php?t=88988
The act happened in ROOM 4 of this dungeon.
From the POV of his character, there are Gnolls in the region doing some business near their hamlet (CD4), and are sometimes attacking stray villagers, with no villagers having survived such attacks so far. The villagers have asked the PC's to investigate and make stop the Gnoll attacks on the hamlet's inhabitants (the Gnolls haven't attacked the Hamlet per se).
So that's the situation in more detail, I hope it will give you better reference to give your feedback.
Oh... (OT), CD4 is turning out to be awesomely fun, and I think it has the potential to rival many published adventures (congrats CD4 contributors !).