That's actually supposed to happen -- you need villagers to pass away to solve one of the puzzles in the game. And how can it be your fault that the villagers got old, anyway?

There are a few posters who've claimed they solved the game in a couple of days, but it's always taken me about a week -- more fun that way, I think, to play it casually now and again, rather than playing it so fast you forget to enjoy it ...so just breed some new villagers and have fun with them, too!
-- jen
You can always breed more villagers, so keep playing!