The bd guide didnt say anything about this option,but i think there is no problem doint this... : (extra exp and loot)
Just before destroyng the forge and leaving act1
Quest:kill everyone (including the cook haha)
Take off guards armor and kill all in this floor and in the lower also...
The merchant drops fairly many things <img src="/ubbthreads/images/graemlins/delight.gif" alt="" />