Learn English – What does “Blood was pounding in his ears” mean

His intelligence is matched only by his kindness.

This is a way of giving praise: His intelligence is so great that nothing matches it—except his kindness, which is just as great.

My sense of ethics struggled against the reality.

Your interpretation is quite good: my ethical sense of what should be done was in conflict with what "reality" demanded should be done.

It was left to them to decide what to do.

To leave [an action] to someone means to refuse or decline to take the action oneself, so the other party must do it.

Thanks for supplying the context. You're correct in your understanding of "over his milk".

The oxcart question is not offensive in itself, though it is colloquial and hence sounds a bit silly.

The key sentence in the larger context you provide is "She had, for almost two years now, baited him. In the halls, in the elevator, even in his own office, into which she romped now and then like a circus horse, she was constantly shouting these silly questions at him."

To bait someone is to deliberately taunt or annoy them, hoping to get a response from them. (Analogous to offering bait to a fish in the hope that it would bite.) She behaves extravagantly ("like a circus horse"), she shouts out rhetorical questions that are both colloquial and hackneyed, and ultimately she is always asking the same question that assumes things are going badly. She's negative, imposing, and annoying.

At least that's my take on it, based on a few paragraphs. I have to admit that I've never read that classic story before.