As far as the bomb itself goes, this strikes me as the sort of situation where a player with gregarious personality offered a lot of resolution as proposition. That is, the player spent a lot of time, declaring the outcome of his actions as fait accompli with no fortune mechanics at any stage and had a young DM with little experience and unsure how to handle the situation.
The DM declares that the Wizard built a bomb capable of destroying a large city. We can be pretty certain that it was magical, as if it was physical, there would be no way to construct such a weapon.
Let's presume that to destroy a city, at minimum the bomb must have the explosive power of a small nuclear weapon. Let's assume that in this world, by an alchemical process, the PC's develop an explosive akin to TNT. Since a small nuclear weapon has a blasting power of 10,000 tons of TNT. The problem here is obvious. A pile of 10,000 tons of TNT is a cube perhaps 120' on a side, significantly larger than a barn. Even if all the blocks of the material were on hand, it would require days to laboriously construct it, and then, how in the world would it be deployed as a weapon? And the whole time this bomb was being constructed, an enemy with but a tiny cup full of the same explosive could sabotage the whole thing by setting it off prematurely - to say nothing of whether a fireball or similar spell might do the same thing, or at least set it on fire and produce a gigantic bonfire.
If the explosive in question was only gunpowder or the like, then an even more gigantic building is required, and the sabotage is even easier. There is no 'launching' any of these things. You can perhaps drop them on something, but only if you have a flying castle - and if you have a flying castle in the first place, you could always drop _that_ on something anyway.
But the fact that the PC's can now blow up cities is far from the biggest problem the DM has introduced into his campaign. The biggest problem of all is that the DM has now allowed the PC's to violate the heroic basis of the setting. Heroic fantasy settings are invariably based on periods of human history in which defensive military technology overwhelms offensive military technology. In such a setting, a few well equipped and skillful 'heroes' can easily defeat a large number of foes. The earliest such era was the Early Bronze Age, which saw the first appearance of effective armor. Aristocratic warriors capable of affording this advanced armor could easily defeat a dozen or more less well armored and equipped foes, and inspire terror in hundreds of enemies. We see the relics of this age in the romances of Homer, particularly the Illiad and its discussion of early bronze age warfare. Likewise, in the Middle Ages, with the development of steel armor and the stirrup, well equipped aristocratic knights could defeat a dozen or more less skilled foes. A few defenders secure behind castle walls could defeat entire besieging armies numbering many times the number of defenders. From this springs the idea of the mighty hero.
The anti-thesis of this 'heroic' eras are periods in which offensive weaponry begins to overpower defensive weaponry. In such eras, only the leaders, the great captains and commanders can hold in our romantic imaginations, because among the common soldiery, regardless of your skill, some random shot or blast directed by one with far less skill can kill you easily.
So now the PC's have invented the equivalent of a nuclear bomb and used it to irresistibly kill nearly a 1000 enemies by surprise. The campaign is over, the players just haven't realized it yet. For now that the players have done so, nothing prevents their enemies from doing the same to them. The PC's will be sleeping somewhere some day, and then any DM running any sort of realistic campaign will declare: "Well, that's that - TPK. I guess you should all roll up new characters." Cries of disbelief and confusion will abound. How? What? Soon after will follow cries of anger! That's totally unfair? Don't we get a saving throw? Don't we get some warning? And the answer will of course be, "Well, remember how you bombed that castle? It's inhabitants had no warning. It's inhabitants received no saving throw. It's inhabitants just died, remember? And you didn't call that unfair. So why is it unfair that the same thing happened to you?"
The fundamental basis of any RPG with a heroic character is that the PC's are hard to kill. The corollary to this must be, "The NPC's are also hard to kill." If the corollary is not true, then the basis is not true either. Any tactic that the players use to win can be, and must reasonably be, turned against them.
