Just helped a guildmate get Sir Lucan. You DO take a faction hit for killing the live version, and YES you DO take a faction hit for being in the zone when your group finishes off the undead version also (found this out myself). I was told that you do not get a faction hit with the undead version. TRUST ME... YOU DO. I instantly became KOS and have been working on the goblin ears for 2 days, I have turned in approximately 200 and I am still KOS. I have read on other posts that the KOS status is irreversible. To date... it seems they are right. I am going to stay in Highpass for another 300 ears or so (killing all I am able to and purchasing them for 2pp/ea also) and will let you know if anything changes.
Sparge Fyrestorm ~ 51 Warrior
Tholuxe Paells
"The Ascended"