Yeah, the gnome turning on his bard friend i could see as ok, actually.
(Had to change this in an edit.)
I think many judge what is right and what is wrong,based on our modern concepts, a bit too much.
Many of our cultures that we would have believed were lawful good were fine with murdering men,women and children of neighboring enemies.
Look at the Crusades.
There were a ton of tortures that are still viewed as, well, just plain sick and wrong these days, but it was said to be done in the name of God.
This is somewhat like Mammy and her kids in the Runelords path.
They were evil through and through, but you kinda couldn't help feeling a little bad for them based on their child-like qualities, but our party whole slaughtered them and didn't look back.
So, a gnome freaking out over an enemy that his race has fought with for hundreds or even thousands of years is not too far off.
Especially when a party member tries to defend that enemy when they are running away.
Heck, my druid would have likely spit on the bard and not healed him at all, even told him to stay out of the way when the right decisions needed to be made in the name of a greater good. That or he would have pitied the bard for his lack of critical thinking in letting the enemy get away to go and warn their friends, either way...
All lizardfolk are evil and should never be given quarter under any circumstances.
This is where the Dm could have fun with a good aligned Lizardfolk that, while not fully trusted, has been given the charge by,say the head of a good cleric order to guide the party through an area of other evil lizardfolk.
Ooo, the roleplaying can be fun on this one.
Something a Dm told me years ago about DM'ing has stuck to this day, that being cause and effect.
That evil wizard you killed may have a paladin brother that loved him dearly and will seek retribution for his brothers death.
He may understand why his brother was killed, but in his eyes, anyone can change, his brother just needed more time.
Heck, look at Raistlin in the dragonlance books... Evil!!
Also, remember that in nature, many animals will eat their prey while it is still alive and screaming, see lions and large cats.
Heck the same lions kill the lioness's cubs of another male lion just so she will be ready to mate faster.
Nature is cruel and not always butterflies and bluejays.
Had to edit this post a lot the more i thought about it.