Well, in the current situation it doesn't make sense for Kreia to kill them. She didn't want them deaad, just... humilitated, proven her point.
It would be out-of-character...
As for the mindreading, that's because your party gets wiped as soon as the scene enters. With exit-reentering you can start the scene with a party, but they look sorely out of place, since it's really all about the exile, the masters and Kreia. And they had no VO except for that one piece, so I think OE find it better to just get rid of them, something I would agree with works far better atmospherically (is that a word? )...