You are not penalized. Several posters have in fact demonstrated (in game) that you get more experience by not killing everything that moves. So this is a non issue. The current debate revolves around the concept of double dipping. i.e. getting the quest exp (more than you would by just killing) and then killing the guys.
It doesn't matter which side has the advantage, they should both be the same. It's not really a hard sell, but people seem to hate everyone being treated equally in this thread... :-/
