I have been DMing for about 12 or so years. I think I've been playing for 14. I have NEVER even considered letting a TPK happen. Why would I destroy all my players fun? The TPK that DMs seem to glorify (especially sometimes on this site) is sad to me.
If you encounter a TPK, you (or your players) did one of the following things:
A. You don't know your players well enough. If you know they jump head long into combat, why would you design something to destroy their fun completely? It is just a game, and if you don't have anyone to play it with, well your gonna sit at home by yourself playing WoW or Black Ops all day.
B. You made an encounter that was to hard that your players refuse to run from.
C. Your players acted foolishly and you now run the risk of losing your gaming group if they are not comfortable with a TPK. As a note, I've never been a part of a group that would accept a TPK and come back to that DM.
D. Bad player dice rolls.
E. Good DM dice rolls.
F. Poor decision making, sometimes not by "players", but by a single player.
G. An excellent move by an NPC.
H. Poor PC design.
I. An unexpected action (but not obviously foolish or bad) by a player that results in something bad happening nonetheless (e.g. like a PC going past the enemy lines mid-encounter and falling into a pit trap that the PCs normally wouldn't have gotten to until after the encounter, hence, taking the PC temporarily out of the action and giving a major advantage to the NPCs).
I've been playing and DMing for over 32 years and the game also isn't fun if the DM just spoon feeds the players' bad decisions and habits. Other players can get frustrated because the DM won't let the players who make mistakes learn from their mistakes.
In today's game, the party Wizard was about to do Burning Hands on 6 foes. Even after hearing the Wizard player saying that she was going to do that, the party Slayer decides to shift back a step away from the foe she was engaged with, and then charge a different foe, just to get a slight bonus to hit. The Slayer was now in the way and this effectively prevented the Wizard from doing the Burning Hands without also targeting the Slayer until about 3 rounds later. At that point, it was against fewer foes and a lot less effective. This decision probably cost the group at least 2 healing surges.
In a fight later on, the party Bard decides to attack a healthy foe when there were 2 bloodied and 1 healthy foe available. As it turned out, this allowed one of the two bloodied foes to get an additional successful attack in because the next attack on it didn't kill it (but would have) and caused more damage to a different PC. Why did he do this? Because he didn't want the Rider effect on his Encounter power to go to waste in case he killed one of the two bloodied foes. As it turned out, that wouldn't have happened because he didn't (and couldn't even with a critical) do enough damage. Even if he would have lost his Rider by killing the foe, that wouldn't have mattered because there would have been one less foe to handle. The ultimate Rider is one that kills a foe. This cost the group a healing surge as well.
Here's two example from my game today where the players were more interested in a minor gain (a bonus to hit in one case and avoiding losing a rider effect in the other), didn't take into account the bigger picture, and it cost the team overall.
Poor decision making happens in the game quite often. It won't get better if the DM doesn't allow the players to have the normal consequences of their actions occur.
As a player, it destroys my fun when the DM goes out of his way to protect the PCs of the players who are making bad decisions. I want them to get better at their tactics and that doesn't happen if the DM prevents the consequences of their actions in the name of "their fun".
As a player, why exactly does their fun trump my fun? To me, one of the worse things a DM can do is fudge dice or scenarios to protect the PCs. As a player, I feel that my suspension of disbelief is jarred when the universal laws of physics shift and the DM does a minor or major deus ex machina.
As for your last comment on "I've never been a part of a group that would accept a TPK and come back to that DM", all I can say is: Wow.
That's the most self privileged and player entitled comment that I've heard in a long time. Especially when one is discussing a TPK because the PCs ran deeper into the dungeon after the DM already protected them from a TPK.
Personally, I wouldn't want to play with a DM who goes out of his way to protect his players from their own stupidity (and sometimes it's not stupidity, but a belief that the DM is there to bail them out, so it's ok to do whatever silly or stupid thing that the player thinks to do). It's one thing to make a mistake and hope that the DM helps bail you out, but it's another to feel entitled to having the DM bail you out to the point that you wouldn't let that guy DM anymore if he wouldn't do it. Unbelievable.
Everyone makes mistakes at the gaming table. But if they make mistakes big enough to result in a TPK and the mistakes were made by the players and not by the DM, then the players shouldn't expect to be saved by the DM.
These players appeared to have made 3 such mistakes from what the OP posted:
1) Trying to scare some foes and alerting other foes.
2) Heading deeper into the dungeon instead of out the way they came.
3) Ignoring the warnings of the dwarf.
The fact that they rolled poorly and the DM rolled well was not a mistake on their part and he was reasonable to prevent a TPK because of that. But they kept pushing it after that and he's now being overly generous to them. IMO.
