worse case if you have to kill him, and want your rep back, you will just have to pay some serious coinage to the temple to get it back up to 18 ( which is the highest you can raise it to with the temple), or if you don't want to do that, you can always cheat them in
@churchlady - I'd restart, since it's (presumably) only just after starting the game. Otherwise, however ... just bite the bullet and kill the guy, there's a surfeit of +REP quests out there, so you'll eventually be able to earn maximum REP in spite of taking this hit.
You should have an autosave just after entering The Friendly Arm, since it applies similar to an area change and needing to enter with your full party. Just reload the autosave or another save game and talk to him again, then save after getting the pantaloons. It's usually best to just reload a save unless you're doing a let's play or something and don't want to reload saves often. It's best to save a lot in these old RPGs though, especially before dialogue convos in case you feel like you screwed up.
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Lower-level options to prevent reputation loss (as suggested by @OlvynChuru in an IWD thread) are to kick someone out of your party and then either:
1. Cast Rigid Thinking or Confusion on them, then run away and hope they attack the Nobleman.
2. Charm or Dominate on the Nobleman, and make him attack the ousted party member.