Chaos player has the forge out with 2 developments in the KZ. He plays a 1 cost disease attachment for free. "In response" the Dwarf player Kabooms the forge. What happens?

Well, from what Entropy explained on another occasion, paying any costs takes place when an action is added to the chain, so even once the forge is destroyed, the attachment would probably still be considered 'paid for', and would resolve normaly.