Why was everyone attempting to fool Ulla?
If the newcomers bring in new ideas about death, she might feel bad that she causes everyone to die. Like you said death has a very blended meaning. Since she is alive, she might get rebellious. I assume the elders wanted her to believe in what she was doing was 'okay' without having to deal with her wavering faith. Kiriko loved Ulla and spoiled her. 
Also remember living people still stay in the inns, so if a person unwillingly dies or always avoid her, it might change Ulla's meaning of 'death' and she won't kill anyone anymore. Ulla also is still alive, and in ep.6 it mentions the children of immigrants are still alive until the age of 15 so she might find it sad she can't go outside without killing people. In the end, they accomplished making her have a different meaning to the word "death", and for it to work they needed everyone around her to act a certain way.