Ath'kethin
Elder Thing
It seems to me that your two best paths forward are:They don't want to play those games. I've asked.
Those systems are usually more lethal (which is a strike against the players who want a deep story experience) and don't have the tactical depth of more modern systems (which is a strike against the players who want that style of play).
They made it halfway to 3rd level. But I think they consider the investment in the story and character development as a part of character creation - so that is all lost as well. So I do understand that part of it. Another part of the frustration is how quickly the TPK happened in that specific encounter - a matter of a few rounds.
In PF2 I am awarding them a Hero Point every hour to every player - which is pretty darned generous.
1. The old "wake up stripped of your belongings and now you have a serious side quest before you can get back to the main plot" approach. This one can work well for introducing and seeding adventured down the line, as well - why did the villains leave low-level nobodies alive? It's a question that can spur awesome ideas.
2. Just redo the encounter. TPKs can suck, But I'd change it up - don't make everything the same, so the party can't just change their approach slightly and have it work out.
Disclaimer: I don't know PF2 or Hero Points at all, so I don't know how those aspects might factor into things.