It's simple. If this game at any point makes players feel bad and not have fun, it's doing a bad job. Games are meant to be fun.
Regardless of how many people might enjoy a certain element, if it has a lot of potential to make players feel guilty or feel bad, they should come up with another solution. You can have fun in other ways. It doesn't have to be killing goblin kids.
I can't tell if you're being sarcastic or not, but if you're serious, that is a very slippery slope stance to take. People get upset for the most insignificant, nonsense reasons, and if we take out anything and everything that may make someone feel bad, we'll not have any game left by the end.
Conflict is the core of storytelling. Characters in stories face obstacles and setbacks, and they have to make hard decisions and sacrifices. Otherwise, there is no story. Feeling bad, conflicted, uncertain is necessary, because you cannot have release without building up tension first. Even children's entertainment, which by its nature skews towards more simplistic morality, will have plotlines and ask questions that can upset its target audience. Surely games as a medium can aspire to that level at least?
Of course, storytelling is not always the main focus in videogames, but with this particular one, I think it's fairly obvious it's at least on the same level of importance as the other aspects. If you don't want to think at all about what you're doing, there are plenty of dungeon crawlers with minimal or no plot on the market. Kill monsters, collect loot, have fun. This is not meant to be disparaging, we all look for different things in our entertainment.
By the way, you don't have to kill the goblin kids. Get rid of the three leaders, then go report back to the tieflings. Halsin will be waiting at the grove, having freed himself without your aid. There, no dead kids on your conscience, monstrous or otherwise.