In ten years of gaming, I've only killed the entire party a handful of times. It's just not something that I, as a GM, relish. I want my players to succeed. I also want them to fail.The risk of failure that is commonly hung over the player's heads is the possibility of character death. This is a risk that needs to be there, but it should never be the only, or most frequent form that failure takes.
What made the total party kill acceptable in this case? A few things. 0-level play is particularly lethal. You have all the strength, cunning, and resources of a peasant. Heroics, like rising from the dead, feel pretty out of place here. That's not enough for me to stop a game though. The biggest deciding factor was bad player decisions.