Elmo, I find, is very prone to throwing a wobbly and either storming off or attacking. I once had him leave the party because we'd killed some chickens (by accident I might add) during the War of the Golden Skull. Regarding the assassination of the Dwarf Gem Dealer if you leave Elmo downstairs he will ignore the screams, explosions and blood seeping through the floorboards from up stairs and happily re-join after you've finished with the Dwarf party.
There are always going to be plausibility issues, but I think we can all agree that in general it's best if a 'good guy' like Elmo doesn't participate in murders or even abide by the needless killing of animals.