I hate to step on your creativity, and I do enjoy the 'sandbox' style of play, in moderation. I just want to drive home the point that these humans are Monsters with a capital M. You know how in OD&D Volume 2: Monsters & Treasure, it says "Men, Number Appearing 30-300" and then goes into detail about their troop composition, leader-types, etc.? This is that!! And 30-300 is the number of combat-ready adults, not including children and civilians. This difficulty of this encounter is not "balanced" for a party of one 1st level PC.
Beppo is not a "Man" and he is arguably not even a "Man-Type." In OD&D Volume 3: U&WA, dwarves, elves and gnomes are listed as "Giant-Types" alongside goblins, kobolds and orcs. Therefore an argument could be made that Beppo despite his diminutive stature is considered a Giant-Type by the humans!
While it's true we are using Delving Deeper, not OD&D rules, I do like to consider these quirks of the original game as background inspiration, when I am doing my world-building. These Humans of Hornpipe view Hobbets as mischievous fairy-tale creatures, like grumkins, snarks or ogres. These humans would consider hobbets as capable of such crimes as snatching your baby, curdling a cow's milk or stealing a cooling pie off your windowsill.
And really, can you blame them? Hasn't Beppo played right into their stereotype of Hobbets as malicious gremlins or vengeful bogeymen?
The flip side of the coin is that, I do love your idea to bend the children to your will and use them as minions and informants. I have allowed such things in past campaigns. Memorably there was a young NPC informant named Loose Lips who worked as a busboy at the Arkham Saloon. But Beppo has to earn that. Right now, he is a stranger to these children, and they have no reason to respect him. Beppo would be looking at Hero level or thereabouts, before he gets that kind of influence over NPCs. (Or perhaps some type of magic item, that lets him have a pied-piper effect.)
[f=59]
Stern (
Strong Hero, MV 9′′, AC 3, HD 4, hp 20, FC 4 men/hero, SV F4, L)[/f]