[SPOILERS INSIDE] Confused about the strange Crooked Shank ...

Keep care, please: SPOILERS inside!

First: I really like this village/small town it's really beautiful designed! So I was pleased to find a quest and followed ... (as you can read my bug report here)
After bringing back the house key to the Major of Crooked Shank I visited his house and found a Prison Key on a table! I took it and found the Prison! I OPENED the Prison. The dialogue with the Elf told to find the Prison Key! Well it was done! The door was open at this point ...
I found the Elf Key with the Elf Corpse.

Outside I asked -truly- about to free the prisoner and the Major attacked me. So he died. One of the Guards came by - attacked me, died. I decided to find this Elf tunnel. I found the hatch in the NE / E. Elves attacked me. I found the room with Elf children. I clicked on the first - and ATTACKED(!) - and killed, no intention to do this! No child talks to me because of this, calling me just "murderer".

Well, at this point I am really(!) confused: What is the clue I am still searching for?
I thought, free the prisoner - nope. She is too scared to leave. Ok, I thought: confronting the mayor! *ups* He attacks me! Okay, he is the bad one! I searched for the Elf tunnel - to receive information what happened in this village... no - they just attack me! I thought: ok, bad humans, bad Elves. But may be I have to free the children? By accident(?) I killed one!

So @Sannio: what is this all about? Is this whole thing bugged?
Thank you for explanation! I was thinking, this wonderful village could be a place of a great questline ... it started very nice with the key for the Major ...
... but, well, at the end I am just confused ...

And at last: The Major and Guard - killed by self defense - come back, taking no notice of mine, until I am talking to them ... and then they attack me again. It feels like a bad Deja vu

 

I had the same thing sort of happen to me. I killed the mayor and so everytime i go into the town they attack me. I did find the poor elf in the house and got the key from her companion. I headed to the elf cave and there tried to release the elves. Nothing happened really. They didnt leave or seem interested in leaving. Best thing about that whole scenario is the story content from the town drunk and stealing the gold goblets from the fat mayor. Gotta try this again on my alt and see what happens.

 

I've been there. The elf children won't talk to me. The town folk clam up when I talk to them. So I left.