I have noticed that most people in Nulb have some awesome equipment on them which would be very handy just before setting off for the Temple of Elemental Evil! So can you kill all the pirates or do you suffer a big reputation loss or other penalties??

Pirates are evil right??

You will turn all the inhabitants of Nulb against you, making it impossible to interact with any of the NPCs there. If you have a Paladin in your Party, they may become Fallen. Any NPC with a name generally gives a quest or is joinable as well.

Depending on how you plan on infiltrating into the temple, you might want to keep the inhabitants of Nulb friendly.

If you want to loot Nulbians, charm them instead, then have them die in battle while they are still charmed. I don't think you incur any bad effects from doing it that way. You might also try and use non-lethal damage, then loot them once they go unconscious. But those you attack will still turn hostile the next time you show up, even though other inhabitants of Nulb should still treat you as friendly.