Choice to kill Iuz: random event or patch?

I don't think so. There are a few [several] unique items of which can be consoled in to the game [like the sword called Excalibur].

IMO - The hammer you refer to is a superior weapon to equip, specifically, against the boss monsters in the nodes. I believe it was just intended to be quality loot after a tough fight as a reward for taking on that encounter and winning that particular fight.

 

I had a weird instance my 2nd time through the game. Like Arkane, St. Cuthbert arrived and Iuz was still alive. Both of them stayed after their initial remarks. I killed Iuz the round following this. Then Shenshock used a mass fear spell (sorry, it's been a while since I played PnP AD&D and I didn't get the spellcraft on it) and regardless of whether anyone made the save they were under they effect of fear, including St. Cuthbert (who saved). This also made St. Cuthbert hostile towards me.

It was a very tough fight for my party (partly because I chose to walk up to Hedrack to start the fight) since I had five level 8 characters, one level 7 NPC, and one level 3 NPC, but I did have Fragarach on my CG Barbarian so I was able to win eventually, with no deaths. I entered by way of the throne, so I came in from the back, if that makes any difference. For me, Iuz had leather boots and gloves and a greater black temple robe. St. Cuthbert had full plate armor, plate gloves, plate boots, and a spiritual weapon heavy mace. The full plate isn't magical and is of the silver variety.

This was the most relevant thread I could find using the search function, so I thought I'd post here. I had seen no mention of Shenshock's fear spell elsewhere, so I thought I'd mention it.

All this is with Co8 FE 4.0.0, by the way.