Telling the PC's " OK its barfight time, you need 5 successes before three failures to avoid being knocked out." is pretty much deciding thier course of action for them.
Whenever there is a situation that the DM envisions happening and events are rigged so that the situation HAS TO HAPPEN, we are on the choo choo train even if it is a short commuter trip.
I would make the difference that even in lawless areas, certain restrictions in bar brawling are recognzied. If you want to pull out your sword and spells while everyone else is using fists and mugs, go for it. But that means they're going to pull out their swords, or call out the guards/local strong man.
Bar Brawl = Skill Challenge
Pulling blades = regular combat system
Up to the PCs how they want to go with it. Even if you start out with 'some dudes start a huge bar brawl!', they have their choices
- enter the brawl
- pull swords and start a regular fight
- run away
- something else