Well, the Danelaw isn't really a thing, but if we take it to mean the rules established in the treaties between Alfred and Guthrum by which their kingdoms were delineated, then no, they did not continue raiding monasteries, because Guthrum was Christian by then. However, I'm not sure exactly when this game is set, but it is definitely earlier than that, so it is kind of OK that you carry on raiding. What is not OK, as mentioned in other threads, is that no other Norse or Dane NPCs come over to Britain at all to raid or settle at any point in the game, so if you have taken over a town you are the entirety of the Viking horde!.....
On a slightly more serious note, completely agree with you. If you own the town and are answerable to nobody then surely you can eradicate places of worship that don't follow your chosen faith..