I just recently went through something like this myself. I run a small group, only 4 people. One of them recently left the game. I wouldn't know this unless his girlfriend told me though, since he wasn't planning on letting me know. He didn't think it was necessary.
This follows several long months of him badmouthing everything in the game. Plots were lame, rules were stupid, and everything sucked. When I look back on it, I have no idea why I let it go on like I did.
But it sounds like your players are a bit more communicative. That's good. Not only did they tell you they're leaving, but they said why. As for wanting easier fights with greater rewards, you might have to chalk it up to differing tastes. The player who left my game wanted a 2E screw around game. What I was giving was a 3E heavy role-playing game. Nothing wrong with either, just an irreconcilable difference in taste.
If your game can survive the loss, carry on, though you might want to get some feedback from the remaining players to make sure they're still happy with things.
And while it's not particularly easy, it's often not impossible to find another gaming group. I've done that in the past. My current campaign is made up of people I've known a while, but never gamed with before this campaign.