I would suggest not using KotOR Tool for much besides extracting files, even then it's usually easier to just use ERFEdit, HolocronToolset is also an option to consider.
Though I don't know what it might mess up when it comes to dialog files but it has been known to cause issues when it comes to editing files.
Also I would suggest looking into TSLPatcher and HoloPatcher for applying your changes when releasing your mod so that changes can be properly applied to the games files.
You're welcome and as I mentioned, there are probably a few other branches within that specific dialog that would need removing.
I'm not sure what the issue is here, I always have both installed so I have never encountered this problem.