Their nickname can't be unknown entity since it says id is unknown... hmm...

It means they've disconnected from the server. If you see it more than once regarding kill logs and there's a player connecting and disconnecting before hand. They're up to no good.

Here's an example from our server which resulted in the banning of both BWS Sand and BWS Ox (other id's have been removed)

21:16:07 | Player "BWS Sand" is connected (id=76561198099358465)
21:18:37 | Player "BWS Ox" is connected (id=76561198128274844)
21:20:07 | Player "Flow" is connected (id= #'s)
21:23:07 | Player "Matheus" is connected (id= #'s)
21:23:07 | Player "Matheus"(id= #'s) has been disconnected
21:25:22 | Player "BWS Ox"(id=76561198128274844) has been disconnected
21:25:23 | Player "Unknown Entity"(id=Unknown) has been killed by player "BWS Sand"(id=76561198099358465)
21:25:27 | Player "BWS Ox" is connected (id=76561198128274844)
21:27:38 | Player "Dumptrukk" is connected (id= #'s)
21:27:39 | Player "Dumptrukk"(id= #'s) has been disconnected
21:28:07 | Player "BWS Ox"(id=76561198128274844) has been disconnected
21:28:08 | Player "Unknown Entity"(id=Unknown) has been killed by player "BWS Sand"(id=76561198099358465)
21:28:11 | Player "BWS Ox" is connected (id=76561198128274844)

Hello Widget and thank you for the report.
"Unknown Entity" is a character that is no longer connected to the server but remains there for 30 seconds after disconnecting (Combat logging protection).If someone kills that character it should show as Unknown entity in your log by design.
Regards,
Geez