Just finished Dragoons dungeon (except for oozes; might leave those for later).

I got the harp for the mayor of Sorpigal quest. However, it seems possible to play it (as well as the flute). Are those musical instruments any useful, or should I just return them for the reward. Is the flute used for anything?

Yep, Chimes are for the Mayor in Sorpigal. The Harp is a quest item for a guy in the Port section of Castle Ironfist. The ooze can be taken out by a sorcerer, or wands, with fire. But it takes a lot of trips to replenish the sorcerer to accomplish. And a lot of repair work. So repair skill and magic weapons help in clearing out that section for sure.

Note: The Chimes is for the Mayor's Office (Secretary), not the Mayor's specific quest.

Regarding Saintly reputation for Master Light Magic...

One tactic is to wait until you have Lloyd's Beacon, then queue up a bunch of completed quests but DON'T turn the quests in for the reward quite yet (these need to be major plot-related quests).

Set Lloyd's Beacon in front of the Master Light Magic trainer and in front of the places where you turn in the quests. Then recall back to each of the quest givers, turn in the quest, and finally recall back to the Master Light Magic Trainer.

That should boost your reputation enough to get it. And by avoiding the passage of time (by using Lloyd's Beacon) your reputation won't deteriorate down from Saintly (as it would if you traveled by horse, etc).

Sorry, but how fast do you guys' rep deteriorate?! It has never been a problem for me to keep my rep up (might be due to regular donations at temples).

Also, I think Angelic is the highest rep level?

As for plot related quests: those would be mainly council quests. I think you also get a boost from promotion quests, but I'm not sure. Either way, I suggest you start donating regularly once you start completing council quests and it really shouldn't be a problem.

In my experience, the higher reps deteriorate pretty quickly. But I was using Grayface's patch and I suppose it could have been a bug introduced by him.

I see. Well, I don't have any patches at all, so I can't say..

Question about Baa temple (south of castle Ironfist)?

How do you figure out the order in which to open the 4 doors in main room? I got it by trial and error, but since there is a riddle next to it, I'm wondering if there is a proper way to solve it?

"As the winds blow, the seasons change, and only at the end of all can the doors be opened."

I still can't figure out how that would point to NEWS.

Rep's deterioration is intended feature of the game. Reputation is represented by hidden number.

-1000 - Notorious
-800 - Monstrous
-600 - Despicable
-400 - Vile
-200 - Bad
0 - Average
200 - Respectable
400 - Honorable
600 - Glorious
800 - Angelic
1000 - Saintly

You lose (gain if at negative value) 1% of reputation per day. Thus, indeed, highest rep will decay very fast, and is tricky to reach.
That vague hint is about 2 fake walls in corridor behind gong. Btw, check all torches in that corridor (the part which is closest to treasure room), one of them (which doesn't have word "torch" written when you point mouse at it) has 5000 gold. Hint is vague because treasure room has a lot of gold for that stage of the game.

Which in my opinion make it slightly unrealistic. People tend to remember those who did great evil/good more than they remember those who did mediocre evil/good. Deterioration should speed up the closer you are to average.

Is the wizard eye spell bugged in that it can be used indoors too (as opposed to description)?

It has slightly misleading description. Its use indoors is intended.

Are the gems found in Snergle's cavern ok to be sold? They are not marked as a quest item and merchants accept them, but are they useful for anything else later on?

Their only purpose is to be sold (and some of those gems have good vendor price).