I just nearly got party wiped on my Honour-run because the vendor-dude was somehow able to not only target/see my party on the second floor above him, but he also managed to hit them with a fireball that somehow went through both floors, exploded and ignited all the smokepowder-barrels sitting up there. He hadn't moved from the ground floor, BTW, just stood right underneath my party with two floors in-between and was still able to successfully attack.

Line of Sight has always been a huge problem in this location with people spotting theft/assaults through solid walls, floors or closed metal doors - but this incident was the most spectacular failure I've yet seen in this place.

Seeing how this climax of the toys-quest doesn't really lead anywhere and doesn't yield any special loot, I'd suggest to simply avoid the place for now if you're on an Honour play-through. I had two guys downed instantly, Minsc was full dead and burnt to a crisp and only my Tav was still barely alive after the explosion had gone off.
Or if you really want to do this one you should probably go about depopulating the place a bit more stealthily. Which I had done, I thought, but, again ... after I had sneakily killed the two guards on the first floor, someone downstairs with absolutely no line of sight on the corpses spotted me looting their bodies, ran up the stairs and thus the fight commenced.

S.