Recently, I’ve completed the arena story line. I’ve completed the Grey prince’s mission, so he just stood there and beg me to kill him. When I did, that message popped up (and this may not be exactly right,) “your killings have been observed somewhere.” When the dark brotherhood guy came I killed him. I have multiple save points, (One before the fight, one before the dark brotherhood came, and one most recent.) So I was wondering if any one could give me a better way to handle that madness.

if he asked you to kill him, nothing will save you from the db... you could just never kill rufio or lachance and leave it be though. to my knowledge anyway.

Well... Do you want to be in the Dark Brotherhood? If you don't then don't kill Rufio. If you do then kill Rufio.

I believe that issue has been fixed by the Unofficial Oblivion Patch, if you're on PC.

You might consider this:

Load the save before you fight Agronak.
When the match starts and he stands there, just nick him to apply a very powerful poison. Stand back and let the poison work. If it doesn't kill him, repeat. As long as it is the poison that actually kills him (not you hitting him), it does not count as murder.

Disclaimer: I have never bothered trying this with Agronak, but it works like a charm on other NPCs so I'm guessing it will work here. My only concern would be if his death is some crazy event that is prescripted to trigger the DB (which I doubt).

Yeah unless you got the latest patch you'll get a visit from Lucian if you kill Agronak. Although if you truly don't want to enter the dark brotherhood, you could always kill Lucian.

Enter the Dark Brotherhood and at least complete a good portion of the quests and you get a very useful reward and you can just stop there and you only get like 11 infamy points.

Try frenzy, the grey prince is fixed at level 10 I think so a scroll may work best, but just make the spell at your level if you can for 5 seconds and try it.

No official patch fixes this. The Unofficial Patch does. Apparently Bethesda indicated to the Unofficial Patch keeper that the murder from killing Agronak is indeed an oversight.

For the OP, killing Lucien is fine as long as you don't want to joint the Dark Brotherhood with that character.

Here's the deal: You have to murder someone to get a visit from the Dark Brotherhood. Then Lucien will visit you for your initiation rite, if you choose to join them. You murder Agronak, because he refuses to fight. If you want to not murder anyone in the game, you must choose to NOT do Agronak's quest, when he initially offers it to you.

There are some great rewards in the DB, but my honest law-abiding characters (like the current one) will not join.