Was the house north west or north east in Ars Magicana?
For the north west house, paying the poet outside to recite some poetry will bring the mage Kistandalius out of his shop, which will give you a brief one-time opportunity to get into his back room and steal the dagger and a random spell book. With the north east house (the smith Geoff, IIRC) you could also have left a teleporter stone in his house, and returned that way when he was outside.
Killing either merchant is not going to hurt your game, except for the loss of a merchant. Kistandalius sells charms and spell books, while Geoff sells weapons and tends to have a lot of gold (useful when you want to sell off loot).
Most or all of the essential NPCs are protected from dying, though you may stil be able to break side quests by killing off certain NPCs.
added protection to more NPCs, though you may have a release already updated to the latest 1.0034A version, as shown in the bottom right corner of the main menu. The DVD version is already updated, and the patch (designed for the CD version) should not be installed.