This seems kind of... silly.

[Sat 07 Jan 2012 07:12:49 PM EST] The duel has begun!
[Sat 07 Jan 2012 07:13:18 PM EST] Dueling is not permitted near stations. Tempo
rary Kill On Sight standing set. Leave the sector immediately, or be destroyed!
[Sat 07 Jan 2012 07:13:27 PM EST] <ARF_01> oops, nfz
[Sat 07 Jan 2012 07:13:45 PM EST] [100] <builderb> yes
[Sat 07 Jan 2012 07:13:49 PM EST] Temporary Kill On Sight standing removed. In
the future, be more careful about violating no-fire zone regulations.
[Sat 07 Jan 2012 07:13:49 PM EST] You forfeited the duel. This is being recorded
as a loss for you.
[Sat 07 Jan 2012 07:13:49 PM EST] Your new duel rating is 1170
*[ONE]Red-Eyed-Bandit: New standings: I:Kill on Sight S:Pillar of Society U:Neut
ral L:Neutral
[Sat 07 Jan 2012 07:13:54 PM EST] [100] <ARF_01> well ****
[ACE]Ermete: Left the sector.
[ONE]Red-Eyed-Bandit: Left the sector.
[Sat 07 Jan 2012 07:13:55 PM EST] You are entering Sedina K-5
[Sat 07 Jan 2012 07:14:24 PM EST] [100] <Red-Eyed-Bandit> odd
[Sat 07 Jan 2012 07:14:29 PM EST] [100] <ARF_01> Yeah that didnt make sense
[Sat 07 Jan 2012 07:14:37 PM EST] [100] <ARF_01> it said to leave the sector, but then penalized me for it

Yeah, the NFZ overrides the duel. We've made note to figure out a way around the problem.

Duelists are still required to be aware of thier location and the NFZ is forbidden to ALL. I am sure they both received a pretty yellow warning in thier HUD that shooting each other in the NFZ was not tolerated. The duel system only overides the faction damage from killing each other - not the violation of the NFZ.

.. A different message for those in a duel might work.
" You must leave the NFZ before resuming or you will receive a temp KOS"

A rework of the Duel tutorial should add a few words on both the NFZ and leaving the sector to indicate the restriction was in place at all times. Might also be an idea for a new jump hint screen.

i guess the most simple fix is making the routine that says
"Dueling is not permitted near stations. Temporary Kill On Sight standing set. Leave the sector immediately, or be destroyed!"

also cancel the duel, or at least make it a tie.

for me, best would be not allow /duel inside station sectors... simply say "go to an empty sector to duel". Why would a station allow a dogfight nearby, treatening innocent convoys passing by?

The duel rules were created to allow consentual pvp in normally protected area.

Canceling a duel if a temp kos could create a loop hole that might be exploited to prevent loss by deliberately triggering the kos....

Honestly, it doesn't need to cancel the duel, it just needs to be more informative about how the duel is going to be affected by the NFZ.