I went to kill Svadilfari and while he does become hostile after the dialogue, the rest of the goblins surrounding him just stand there. I guess this is done so you don't get mobbed by 15 goblins but it seems very illogical that even goblins would stand by and watch as you tried to kill their leader. Anyway, he runs away, I follow and the merchant goblin does attack but stops when he is down to half health just letting me kill him. I suppose this is good because he dropped 17 greater healing potions which have become a precious commodity to me. Then I proceed to the exit and the same thing happens with the "doorman" goblin. I go outside, take dragon form and kill Svadilfari with 3 level 4 Dragon Spheres. I'm level 25 and he suddenly became 26 when flying after being 24 in the cave so I was expecting a tougher fight. The whole thing just felt glitchy. This happen to anyone else?
Happened to me. In they attack me when he first turns hostile, but after he flees they stand there. In fact, they will stand there and let you kill them without attack. Easy exp :P