So then will a Paladin lose their oath if they only kill enemies that have initiated combat against the party? Or does this only apply if the Paladin starts combat?
It seems to make sense to me that someone who took an oath to not kill "innocents" would in fact be breaking that oath if they were the initial aggressor in killing anyone. Even if that anyone happened to have just slaughtered a village full of innocent children.
Yes and no. Sometimes the game glitches out and even red goblins are forbidden to be killed. I've not had that issue with anything that wasn't a goblin.
Normally, hard rule: dot was always red = kill, dot is yellow = oath broken. Cut scenes/dialogue may or may NOT be needed to convert type 2 into type 1. For example, after killing enough goblins in the fortress, some convert, but not all (like those in the dungeons with Halsin). Even if the whole fortress is HOSTILE, they are acting in yellow dot "self defense".
It doesn't matter who initiated combat, but not always. For example, it's completely okay to kill the false paladin of tyr after the dialogue option: die for abandoning my god! (Or something like that). It's also okay to walk a goblin leader into a trap and kill her for... asking you to abandon your god.
There's a few triggers that will make a paladin lose their oath (killing the owlbear, tieflings who captured Lae'Zel). They are all clear roleplay violations. The goblins are dubious and simply not allowed because they're yellow type enemies. I doubt there is a deeper meaning.
For my purposes... not removing the goblins from the road the tieflings want to travel through, and I'd sworn to protect, is extreme OOC. They don't leave when the absolute leaders fall and will commit murder. They're essentially bandits before they're goblins.
You ARE allowed to kill them, but ONLY after converting their type in dialogue. That means walking headfirst into their trap. You cannot change your mind after deceiving them, or do it any other way.
I suspect the blighted village is this annoying because of Wyll's quest. Larian doesn't want us to murder hobo a quest goblin, but we're (unfairly) not given a second chance to convert them. At minimum, killing the quest goblin should turn everyone perma hostile.
