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I`m with FireclawDrake on this, i`m afraid. Showing mercy to the Kobold would possibly have been more useful. You could have used him as a messenger to convey your demands to the kobold leaders. If they still didn`t respond, then the time for talking is over.
As to whether you should lose your powers, thats tougher. If you honestly thought that you were obeying the edicts of your faith and code, then it would be harsh for the D.M. to have you fall.