No-one outside the FBI/Sheriff's department shows much reaction to what they've heard. Surely in a small town like Twin Peaks, there would be a lot of gossip & speculation about Leland Palmer killing his daughter? Not to mention the various opinions if Bob were to be mentioned as the real killer...

 Was this done to keep the rest  of the cast in the dark about the kiler's identity? (I'm assuming that some of the later episodes were filmed before the broadcast of the episode showing Maddy's murder.)

It was time to move on with the storyline. 

FWWM was for dwelling graphically on the lurid details, without the hindrance of the networks.

Exactly. Time to move on. I actually think it's quite touching the townspeople unite to be close to Sarah in her time of need, (despite the horror of Leland's crimes), it's a nice example of the endearing spirit of the place that so attracts Cooper to it. ("Harry, I'm really going to miss this place").   

"Would you care to join me for an incredible evening of night fishing?"

"Aces" 

Didnt the following episode take place a couple of days later? It probably skipped all the gossip.

Exactly, it picked up three days later, thereby skipping over all the townspeople catching up with the rest of the plot.

But curiously news about Leland's death still appear in the front page of the Gazette issue Agent Hardy is reading in the RR days later after the actual event...

I agree that the writers decided they had to move on, in a community like that where the death of a beloved girl affected so many people the identity of the killer would have been even more shocking... That's probably why ep.17 is set days later. But anyway, we still see some particular reactions that are interesting like Ben's downfall...

 I agree that the writers decided they had to move on, in a community like that where the death of a beloved girl affected so many people the identity of the killer would have been even more shocking... That's probably why ep.17 is set days later. But anyway, we still see some particular reactions that are interesting like Ben's downfall...

Exactly. "My friend Leland Palmer... turns out to be a homicidal lunatic." Certainly the implication, as well as the fact Ben saw Leland's state, is there that it was common knowledge. Still, certain reactions would have been interesting, such as Donna (certainly came close to becoming a victim), Bobby, James, Ronette - basically Laura's friends.

Yeah, it was time to move on from the main storyline of the show and get to new storylines that sucked and had nothing to do with the look or feel of the show.

The townspeople were in denial. Some handled it better than others. Many could tell a story or two that would be shocking. I think the people closest to the Palmers did so appropriately by comforting and tiptoeing around the circumstances. The mystery was over. The more stunning part could have been how Leland kills himself. Self-concussed, ouch.