When entering the lair to kill the master vampire, Alva is non-hostile and will fight the other vampires, is this meant to happen?

I don't think so. Doesn't sound right.

This might explain what happened to me since I was sneak attacking so didn't notice if she was non-hostile. When I killed her I got a 1000 gold bounty, then when I killed the blood vampire that was in the room the bounty went away saying the witness was missing.

Seemed pretty odd considering who Alva is.