First, I don't see why the players are being shamed into doing something. Their characters may be, but the players have a choice.
Some players are really into the game, feel deeply attached to their PCs, and take some things more personally than other players.
Some players can roll up a new NPC at the drop of the hat and could care less if their PC dies. Others get a bit more emotional about it, especially in no win type scenarios.
I don't have a problem with a PC dying, but it's often how the PC dies that makes it sucky or not.
Second, Option 2 is totally heroic. I don't understand you definition of "heroism" if willingly facing a night-unwinnable fight doesn't qualify as "heroic."
It depends on the scenario.
I would not have expected this NPC to keep his word at all considering that he appeared to be leading a force that came looting, killing, and burning.
So sacrificing yourself and then having the villagers killed anyway isn't my cup of tea heroism.
It's not very heroic if the NPC does not keep his word. I know people who would call it stupid.
There are definitely scenarios where a Lawful Evil NPC could be reasoned with, but this group did not seem that way. Maybe it was just my impression.
I also like a bit higher level of heroic sacrifice. Saving the entire party at level 10, fellow PCs whom the PC has been adventuring with for a long time. Or saving a town where our PCs have been home based in for a long time from destruction. Saving a few villagers that the PC has never met before and has no emotional attachment to (or not if the NPC does not keep his word) just seems a bit anticlimatic in some way. Baby steps I know, but still...
This is like the blue dragon scenario. Our one player is playing a Chaotic Good fighter who's a bit nuts and willing to stand up to a blue dragon. The DM ran with it, had the dragon claw the fighter down to 2 hit points, and then fly away chuckling at the arrogant human. Some of the other players felt like fifth wheels a bit since it was an unwinnable scenario that appeared to be intended to either wipe out PCs, or prove to the players that they are not special after all.
Some DMs like games were the players actions do not seem to matter and the PCs are not that special. As a player, I prefer to not play with those types of DMs and in those types of campaigns.
Third, you left off Option 4: use magic, roleplaying and cleverness to "win the no-win scenario." Your description of how you got around it sounded great! Sure, it required some cooperation from the DM, but all good creative options require a DM that's willing to let you do it. A DM that totally shuts down out-of-the-box thinking isn't a good DM.
What you have here is a sadistic NPC (albeit one who follows his own code of honor), who is giving the PCs a sadistic choice. Responding to it is a difficult moral decision that will get different responses from different PC parties. I love difficult moral decisions in my game. Letting a new set of players with new characters work that out is the kind of role-playing moment that will set the intra-party dynamic for the rest of the campaign. You know... Bruno is the guy who doesn't trust the enemy to keep is word and is willing to make the tough decision of letting a few innocents die to preserve our ability to fight back while Charis is the one who would rather risk her own life than let the innocents die.
Maybe I'm wrong, but you seem to be interpreting this scenario as a railroad event in which the PCs are obliged to respond in a particular way. Maybe your DM made it seem that way. But it's not. It's just an evil NPC doing a classic evil maneuver. The PCs can react however they want.
Yeah. Maybe it's the entire being handcuffed part of it that is annoying.
I like options when I play and this one felt forced. It reminds me of a podcast where the DM drew in a room with sarcophagi and such, the PCs took one look in the room, and walked away.
That's choice. This scenario, not so much.
I really don't like the DM wrenching moral obligation out of my PC. Let it flow organically over many sessions instead. JMO.
I've also mentioned how easy this module has been so far. Granted, we have 6 PCs many of whom are stealthy. The module just feels like "beat through a bunch of easy fights". Then, go face something impossible to beat to prove that the PCs are nothing special. It's happened twice now (the dragon and the half dragon).
The DM did mention to me that she is going to rip an entire portion of the module out, just because it will be so difficult to run it and our group will easily screw up what we are intended to do. I'm not surprised.