I always read that to mean that, yes, while Lareth is probably being pretty sneaky, that the local townsfolks/veterans of the ToEE era were sufficiently paranoid to "cry wolf" upon the signs of sustained bandit activity, even if it wasn't in their immediate vicinity.
I do believe you're right.
Mind you, I've always felt that T1 falls short of what I think it should do. The Village itself is very interesting, but it lacks adventure opportunities. (I've always preferred the set-up of L1 for introductory parties). I expect that T2 never properly materialized has something to do with it, for T1 is very much part of a greater whole and without the Temple nearby, there's somewhat lacking in adventure.
PS:
what other key GH modules are you missing, Merric? What are your thoughts on S4 so far (and, when you get a chance, on
my S4 page too)? (Perhaps another thread?

).
LOL.
S4 I've had in pdf for a while, read it before then, and actually played in during the day. It isn't my favourite Gygax module (that is a tie between EX1 and B2!). For me, it relies a little too much on "this is the next new monster you'll be facing". But that's primarily from reading it; as I recall it was mostly fun to play through.
S4 really suffers from being old; at the time, it was a source of a *lot* of new material and I'm sure that if I'd been a DM at the time, I'd have been over the moon. However, I read Unearthed Arcana and Monster Manual 2 long before I ever saw S4, so much of its impact is blunted.
I've always liked your S4 page, grodog. Learning bits of obscure design lore about old D&D is something I love doing.
At present, I think the only 1e Greyhawk products I'm missing are... none of them! WG5 (and a
special extra) arrived, and that closes off the AD&D Greyhawk I didn't have.
2nd edition - now, there's a different story, but are any of them "key"? I don't think so.

I have the boxed City of Greyhawk, and a few odd modules, but most of the rest - especially the late 2e material - I'm missing. I've got them somewhere in pdf form, and I'm not really wanting to search them out.
My actual list of 2e Greyhawk products:
City of Greyhawk boxed set
WGA1 Falcon's Revenge
WGA2 Falconmaster
WGA4 Vecna Lives!
WG9 Gargoyle (yuck!)
WG10 Child's Play
WG11 Puppets
WG12 Vale of the Mage (double yuck!)
WGS1 Five Shall Be One (I like this one)
WGS2 Howl from the North (I don't like this one)
WGR2 Rary the Traitor
WGQ1 Patriots of Ulek (a friend bought me this back in the day for my birthday, knowing how much I liked Ulek. Alas, it's poor).
City of Greyhawk Boxed set
I suppose the only one I'd really want is WGR1 Greyhawk Ruins, but I have it in pdf - and played through it as a 3e conversion a couple of years ago - and it doesn't thrill me at all!
Cheers!