The second section of the kobold lair is generally regarded as one of the hardest encounters in Keep on the Shadowfell, and has resulted in more than one total party kill (TPK) for unwary adventurers.
The encounter as printed features no less than 17 kobolds, divided into two waves. The heroes have three rounds to take out the trash mobs before the goblin boss Irontooth wades into the fight with his pet kobold wyrmpriest. Irontooth alone is a party-level threat, packing 106 hit points and a crippling two-swing "dual axe" power. With the addition of the wyrmpriest, who has a group heal and a nasty ranged attack, Irontooth can be a killer.
To make things worse, if any of the kobolds from outside escaped to deliver a warning, the players can find both waves ready and waiting when they enter the cave. Alternatively, unwise players might move immediately into the cave after clearing the outside guards, forfeiting the vital five-minute rest they would otherwise be entitled to.
Hard fights are a good thing. Players love them, providing they're not every fight. The times when characters are in real danger of death are the times your players will tell stories about years later. I'd question the wisdom of DMs who actually let their entire party die, as permanent character death generally isn't fun for anyone, but to some extent that's a matter of play style.
So, in my eyes, the kobold lair is a success. Lots of monsters with a range of interesting powers, a named villain who packs a genuine threat, and an interesting tactical layout. My players had fun here, and so did most every group I've checked on the internet. It caps off the kobold storyline nicely, and as a reward the players will get their first really worthwhile magical item - a suit of +1 dwarven chainmail.
The sole problem with this encounter is, once again, a misleading layout. As mentioned before, the maps are cribbed from the D&D Miniatures game. The battlemat of the lair shows a pile of treasure in the northeast corner which is so big it occupies 16 squares, or approximately 80 square feet. Players will be bitterly disappointed when they discover that the gold is merely artistic licence, and the treasure is in fact limited to one chest containing a handful of coins and the aforementioned dwarven chain.
The conclusion of the fight features a defeated Irontooth futilely calling to his dark master Kalarel for aid, followed by the players discovering a signed letter indicating that this same Kalarel is up to evil shenannigans in a local ruined keep. With the kobold questline finished, the stage is set for the main adventure, as the party head back to Winterhaven to find out a little more about the titular Keep on the Shadowfell.
 The kobold wyrmpriest's incite faith power gives 5 temporary hitpoints to each kobold ally within close burst 10. This can result in minions with 6 hitpoints, which runs counter to the philosophy of minions having either a single hitpoint or being dead. Also, it's devastating to the party if the wyrmpriest uses it before the minions have been mostly mopped up. Was this the intended effect, or should it read "non-minion kobold ally"?