Plotscripting problem...

include, plotscr.hsd
include, jamesdopp.hsi

plotscript, forstarters, begin
suspend player
show backdrop (5)
show text box (5)
wait for text box
show text box (6)
wait for text box
fade screen out
show map
wait (15)
fade screen in
wait (15)
show text box (7)
wait for text box
set hero speed (me, 8)
set hero direction (me,east)
walk hero (me,east,2)
wait for hero (me)
set hero direction (me,north)
wait for hero (me)
wait (10)
destroy NPC (2)
wait (10)
set hero direction (me,south)
walk hero (me,south,3)
wait for hero (me)
set hero direction (me,east)
walk hero (me,east,4)
wait for hero (me)
set hero direction (me,south)
walk hero (me,south,3)
use door (4)
walk hero (me,south,3)
wait for hero (me)
show text box (23)
wait for text box
resume player
set hero speed (me, 4)
fight formation (1)
show text box (16)
wait for text box
end

The only thing I see "off" with your script is where you set the player's speed to 8. Most walking speeds are evenly divisible into 20 (1,2,4,5,10,20), so they won't end up clipping through wall and tile boundaries.

As a possible workaround, what happens if you replace the word "south" with "down"?

Also, if your hero is going to immediately start heading south, it not required to have them face south first - they'll face south automatically.