Ideally, it should be possible to kill anybody. It should also be possible to decide NOT to kill anybody, if you are willing to put up with whatever hassles that involves.
I'd prefer not to have a "Little Lamplight" situation where children troll you with dumb quests and then are completely invulnerable.
You know what? I will say, even if they just allowed you to knock the kids out, that would be better than making them invulnerable. I will admit that. My evil playthrough, my drow sorcerer would have secretly slipped into their little Dragon's Lair and butchered them all while they slept, especially since the one kid actually did rob him of some gold and I failed to convince Mol to give it back.
So, I will agree with you there. As much as I don't like evil playthroughs and killing kids and good people, if you are going to make a game so you can play an evil character, you should at least allow players to play evil.