Mask of Deception
 

This is the mask that gives you the illusion of Dark Elf, now if Im not mistaken (as I watched a normal dark elf walk right by the NPC's) Dark elves are fine to be in the large outpost in Overthere.

Yet everything with the exception of the bankers still cons as "Ready to attack". Am I missing something here? Because the dying is certainly gettin old fast.

This is working as intended. You either did something to screw up your OT faction, or you are just really hated by the OT outpost. My gf's bard cons dubious in dark elf form and scowls without, even after killing a few mobs in kaesora, so I know that it's possible and in fact not that difficult for a bard with dark elf illusion to not be kos in the outpost.

Well, ten to fifteen more levels to go before I can bother with OT factions then >.<

Which deity did you choose at character creation? The residents of the Overthere Outpost seem to be really sensitive to deity choice so if you chose a good one, that may be your problem. Also avoid killing mobs in Karnor's Castle and Kaesora if you ever want to have a chance at walking thru the outpost unmolested.