Instead of saying they should have killed all these random passerby's, my question is why they didn't have fire-support. The second they came under heavy fire, the place should have been lit up.
They couldn't get in touch with anybody. Their commo was out. In fact, IIRC, once Luttrell's team made the decision to let the farmers go, then they knew the mission was blown and they called for evac. Except Murphy came along and they didn't get through. Again, IIRC, the radio operator tried his best to get through even in the middle of heavy battle.