I've never understood that part. I think Doo may have been part of sting to stop him from making more moonshine, but why did they kill him. That guy might have had a gun, but he wasn't holding onto it. He also didn't seem dangerous, except when he said that he almost shot Doo.
I watched that scene again this morning and the Moonshiner and Doo were talking about Doo taking his jeep and stealing some moonshine from the boys in Big Creek or whatever that other place was called. So maybe it also had something to do with stealing moonshine
Doo and his father did not kill the moonshiner. The "boys over Greasy Creek" did, because he was stealing their moonshine. That's why he offered a job to Doo, because Doo had a jeep and knew how to handle a gun - therefore he could help Dollarhide make a quicker getaway than he could make with a mule.
Doo and his father and some other men just retrieved the body from the woods. Doo's father says to him that if he'd been working for Dollarhide (the moonshiner), he'd be a lyin' there next to him. Course if he was working for him, it would mean he was working somewhere. In the next scene we see Doo working in the coal mine.
What ziggyfeinstein said is correct as to what happened. How ever Lee Dollarhide portrayal in the movie is an invention of Hollywood. He never dressed like that and he was clean shaven and wore 3 piece suits. This was said by my great-grandfather who was his brother.
Lee Dollarhide also helped them in times of need, With food and Once at Christmas giving the little gifts and candy he stole, so lorettas faith in Christmas was restored when she was little And loved hearing her sing,so she Would sing extra loud so he could hear her