Psaro didn't know Alena was one of The Chosen Ones.He was never after her at all — it was the King he was after all along. The King's gift of sometimes seeing visions in his dreams threatened his plans, so he moved to take care of him. It was just a coincidence that Alena happened to be outside Zamoksva at the time, and a lucky break for her that the monsters moved against the castle during the Endor tournament... probably on the advice of Psaro's most powerful soldiers, like Aamon. If they hadn't moved right then, Psaro would have been there, and the final fight would have gone... poorly for her.
- Alternatively, Alena would've killed him right there at the Tournament.
Psaro's Karma Houdini status was allowed because it would break the Cycle of Evil Rulers.Just like Estark was destined to come Back from the Dead, Necrosaro would become a Sealed Evil in a Can even after you kill him, to be a threat to the world centuries in the future. Whether he deserved it or not, saving him and resurrecting his Morality Chain would nip this in the bud.
Chapter 6 is an alternate version of Chapter 5.And thus, Psaro can stay dead after all the stuff he did. Preventing him from gaining any Karma Houdini status as long as the player never does Chapter 6 or gets far enough in it to bring Psaro back.
There is very little difference between humans and monsters.The only difference is humans are monsters who've embraced a certain level of civilization. This why the supposedly human opponents at the tournament look like monsters. They are monsters, but have chosen to live like humans. This is also Healy's reason for wanting to join Ragnar. He wants to become a human by spending enough time around humans. Sounds crazy, but it works, as Healy is now human by Taloon's chapter.
Celia / Eliza was Faking the DeadThe Hero was told all their life they had to defeat Psaro Because Destiny Says So. However, were the Hero to simply go out and find out how the Dragon God killed their father, their resolve might have been less. Celia / Eliza may have even tipped off Psaro's forces to the village location to give the Hero a motive. Once it was all over, she comes out of hiding in a magic flash and says she came back to life.