- Violating the rules isn't really an "either/or" situation. You can't go into a store and steal a loaf of Brunswick sausage because "Well, I didn't take my wallet, nothing, I'll pay a fine if I have to, but I really want sausage right now."
- Even if the ethical side of the issue doesn't concern us, and the benefits really outweigh the drawbacks, you need to understand that in the long run, this kind of behavior is still harmful to the person who is "modkilling" and to the mafia as a whole. People will either lose interest, sanctions will be applied, or the next time you're playing as the mafia, you'll be executed without any hints about your role, or... There are many options, and they're all negative.
But I hope that Toxi has learned from his mistake and won't repeat it.
Regarding the actual punishment for "modkilling," I think Hos went a bit too far. With such harsh sanctions, you'll simply have to end the game in 80% of cases. As it was with Master, I think it was quite fair. The day is closed, the player is sent to the chopping block (the role is not revealed). Although, if the player managed to reveal one of the mafia members to the town through "modkilling"... Well, maybe it should be stricter in that case, yes. Depending on the situation?
Interesting proposals about the mafia format. As far as I remember, ND (no direct information) was given to all roles without exception so that players without it wouldn't lose interest in the game. But we can think about returning to the origins. Only in this format of the game, you really need to try very hard to balance the clues, otherwise it will be bad.