So... I feel kinda of dumb? but I've now spent several hours trying to figure out how to progress the story? I killed everything at the moat house area, and killed everything in the field where that battle happened? but now the cleric dude just doesn't seem to care anymore? Can someone point me toward the next thing I need to kill? Because I'm stuck in Hommlet and those villagers are starting to look an awful lot like bandits....

You need to go to Nulb next.

In order for Nulb to appear on your travel map... one way is to get Lareth at the moathouse to surrender. He then offers to take you to the bandit hideout at the Temple of Elemental Evil. If you decide to kill Lareth instead, you can find out about Nulb by reading his diary stashed in his quarters, and it will appear on your map.

It's possible there are other ways too, but those are the quickest iirc.