Make Or Break Time (What Would You Do?)

As I write this, I'm fresh out of a game where going in the GM was not sure if he had just killed us all with what he was planning for the session. The good news - for the PCs anyhow - is that everyone made it out alive. We handled the situation in a way the GM may not have been expecting which led to a win. However, the key factor in no one dying was also a decision that the GM chose to make. I want to talk about that, both the good and bad, and finally ask how you would have handled it.

The Situation
So, the situation was as follows. The PCs (there are 4 of us) were escorting an Imperial Princess to where she would be getting married as part of some political deal. Along the way a scout for the lands we were in ran up, said "run!" and then dropped dead. A dust cloud in the distance seemed to be chasing the scout, and the PCs moved to action. Judging their to be twenty minutes, one PC took the boy - another NPC we'd picked up - and fled back along the road to warn the village and get help. Another PC took the princess and fled along a different direction (into the wilds) to protect the charge from harm. The other two PCs stood the ground to delay the approaching storm and give the two PCs on horseback as much time as possible.

The dust cloud was made by two demons - one fire based and one water based - and between some good rolls and knowledge of combat tactics the two PCs were able to rather handily win the fight. However, the original plan had called for their being 3-4 demons in the fight, and not just 2. The original thought was that the two fleeing PCs would be attacked en-route, but said attacks never came. It was later revealed that the other 2 demons had been defeated elsewhere, but had caused great havoc.

Why This Is Awesome
The way this played out is awesome for a number of reasons. One, the PCs who stayed to buy time look super badass. A single one of these demons each took out at least 15-20 people before going down - and going down hard - along with property damage. The two PCs took out two of them in about 3 combat rounds. Total bad assery there, and that is awesome. This is also awesome because it makes the PCs feel powerful for the same reasons. The world acknowledges this and all is well. Finally, it is awesome because the PCs got to live, meaning noone is out of their character. With how tied to the individual chars some story elements are - and how neat the PCs in question are - this is a good thing.

Why This Sucks
On the other hand, there are some bad things as well. On an OOC level, it is now known that the GM pulls punches when it comes to these things. When the PCs willingly chose to split up to cover all the bases, the core encounter was toned down into a more manageable fight. This isn't necessarily a bad thing, but it isn't the kind of thing that needs to happen when the PCs know what they're getting in to. Also, it means tense situations down the line will be less tense OOC because we have an established history of punches being pulled to make the game win/survivable. By extension of this, while this does make those two PCs look awesome it also steals their hero moment. Sure, they won and get to look cool. But they don't get the action drama of the heroic last stand and buying time for the others to flee. There is story tension and drama here that was missed because of it. At the same time, there is no guarantee the full encounter would have bested the two PCs, especially the way they were rolling. Finally, there is the PCs level to consider. The game is specifically meant to be a long run game, and the PCs are very low ranked right now with getting little XP per session. However, despite the fact that the PCs are all - with one exception - rank 1, two of them were able to take out two demons that a single one of took 15+ warriors who specialize in demon fighting to defeat. This isn't necessarily power creep, but it has the appearance of it. How do you escalate from there while still keeping the feel of low level? It's hard.

More On "The Suck"
I want to be clear, I don't think the GM made a mistake here. He made a choice, but that choice isn't a mistake. There are good and bad to it, and he will have to deal with those consequences. He chose to make it easier for players in this situation, but we're also in the setup phase of a plot arc. His choice means that he should focus on the characters and their "special" qualities that make them the right choice to face this coming issue. The OOC tension can be brought back by simply not pulling punches in another scene, or be controlled by simply stating "you can  die in this fight, just so you know" at a later time with a story fight. All are possible ways to handle it.

The game has made a choice for more of a story structure than a "game" structure. THat is cool, but it is a choice. Ultimately, how it is played from here is how it will go out.

Would You Do It Differently?
So my question is, would you do it differently? If so, how? What would you do? Why would you do it that way? How would you want it to play out? What advice would you give to a young GM in a similar situation in the future?

For me, I think I would have gone the way this GM did, with the exception that I would have had the other two demons make attempts on the fleeing PCs. Maybe not full fights, but give them a chance to have a hero moment as well while also being in some danger. Does the one guarding the pricness stay behind to buy her time or try to escape with her? Does the PC with the kid do the same? Lots of choices and drama that can ensue.