I forgot the exact speech I used, but once I had the baddie that the party killed give a dying speech about how “Now they’ll win, there’s nothing to stop them now.”

So they realized of course that there was some big evil thing that he was trying to stop. But… they were really bad at investigating, and after a couple bad rolls they were convinced he was some kind of heroic figure.

The guy was just racist. There had been a war in the neighboring country and there were a bunch of deep gnomes coming into the country as refugees and he hated them, and wanted to go on a big ol ethic cleansing. This was not a secret plot.

Had a few interesting interactions with NPCs after that with the party talking about how amazing the evil guy was when talking to some of the refugees. One of the players figured it out at that point but thought it was funnier to keep going, and had his character dedicate his life to fighting in his memory.