The place and disease have already happened by the time the Hero returns to the protection of Josiah's Covenant, and "protect from harm" only protects from being targeted, so Leprosy is not discarded (nor is the disease undone).
The decrease retargets in each upkeep phase, so the Hero would still be in territory and be protected from the decrease.
The other Heroes in territory would be protected from having Leprosy placed on them if the current Hero was discarded.
