| Possible Dragon's Eye spoilers I think it's ok if you don't rescue the villagers, although you will miss out on a fair chunk of quest XP. Your real goal in going to Dragon's Eye is the Heartstone Gem, not the villagers.
The key to getting XP for rescuing the villagers is not to sleep after taking out the Lizard King. There's a little girl in the southeast corner of the map who gives you XP for killing the LK and rescuing the villagers, and she leaves before talking to you if you rest after killing the LK.
Kill all the lizardmen in the southeast passages before taking out the LK, and you won't encounter this problem.
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When your back is against the wall... the other guy is in a whole lotta trouble.
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