It is so messed up. The culprit of the existence of the mononoke in the top most room of the inn has been revealed. (See Episode 1)
It turned out that when Okami (inn owner) was young, she ran a brothel in the inn. She made all her courtesans to abort their babies every time they get pregnant.
They even show you how she did it.
The number of the babies she killed is enormous; as there are multitude of kokeshi dolls which represent the butchered children. Traumatizing. Even more disturbing, she has no remorse. When the pregnant lady (see ep.1) explained about her circumstances, she called her naive and stupid for wanting to protect her unborn baby from the assassin.
Aside from the disturbing story, I am quite satisfied in the direction that this anime series is going so far. I was worried that it might have a pattern of finding and slaying mononoke. The Medicine Seller didn’t even unseath his sword in this episode as they manage to find their peace in other means which you should see for yourself. The connection between mononoke and humans’ actions and compassion towards them is a strange thing.