Originally Posted by
Jason
Some additional light is thrown on the subject in How The Paladin Got His Scar.
HtPGHS makes it clear that the paladins in that raid didn't know that the Crimson Mantle is an artifact designed by the Dark One to impart knowledge of the Plan to his high priest. Which means that as far as they knew, any goblin that worshipped the Dark One could be told about the Plan by their diety and was therefore a potential threat to the world's continued existence, not just the bearer of the Crimson Mantle. If any goblin worshipper is a potential threat to the world's survival then it makes more sense to eliminate any village of Dark One worshippers with an active priesthood.
It's still a callous act, but the potential costs of not eliminating all potential threats are the world and everyone in it.
If the Southern Gods had told them that "the Crimson Mantle and its current bearer are the real threat", then they may have targeted only the Crimson Mantle rather than the entire village, but for whatever reason (possibly being over-cautious about who learns about the Snarl) they didn't say this.