It is not a problem if the squirrel is not alive, even dead he will follow you during the entire game as a ghost and will reward you some Skill book recipes time to time (each time you enter a new area)... But as I wrote in another topic, this squirrel is a nuisance even as a ghost he block your team joining you when you climb on a ladder (he follow you, and can't climb a ladder), the other members of your team can't use the ladder to reach you because this %#@ Sir Lora is between them and the ladder !!!
