Ignoring the laws just because enforcement is not implemented is an abuse, period.
There's not even a need to talk about the amount of guards and such things. "Godmodding" also includes the fact that Hydlaa is populated (although only a few NPCs are visible) and organised.
If a serious crime is to happen in the tavern, there would be witnesses, a call to guards, a crowd of spectators coming, and possibly arming themselves and lynching or chasing he culprit, the city gates would be closed, etc, etc. Escape would be extremely difficult, the best chances being hiding in the sewers for a long time.
So, a good plot can include killing in the tavern, but the consequences should be planned, and played as well, either a manhunt, hiding in a house, help from accomplices, etc.
A simple fight (like a brawl, no weapons and no spells) doesn't need so much planning, since the consequences are not so bad, but the brawlers should be fined, or even spend a night in jail, or something.
Now, setting fire to the tavern is just plain silly.