A few random thoughts on the morale script (as I am "to blame").
One of the main switches in the script is that creatures can be set to always flee, which I think is correct for most non-predatory animals, even around druids. Part of the thinking behind this is to make hunting (there, I've said it) possible.
Try and ignore the Hostile thing. To calculate relative sizes of the creatures and PC party requires adding up numbers in the creature
faction, hence why everything is a "psycho bunny". If a creature that
ought to flee attacks you it is a bug, but not my bug, I think. Sometimes creatures' OnPerception events don't seem to happen properly.
I am, I'm afraid, strongly in favour of low level humanoids running away rather than being kamikaze. Again the logic behind it is that you are likely to be attacked when the creature "thinks" they have a chance of winning. Like if you're soloing, for example.
@ Asura King. The animal companion going after hostile animals problem is one I simply didn't think of. Sorry.
@ TSM DMs. As an aside you may want to crank up the perception range for spawns. The default for most things is medium, I think. I have most of mine turned up to Long. I have heard reports that turning it to PC is bugged, but cannot confirm this. This gives the animals chance to leg it even earlier
As mentioned before the morale script takes no consideration of PC levels. How would they know? To a bunch of goblins Elminster is an old guy alone on the road.
Apologies if the system is spoiling your fun, it is an honest attempt to turn the reality factor up a bit,
Teric