I think a lot of people here are missing the point, the thread starter was trying to make.
It's not about the unhappy ending per se, it's about the consequences of this ending.
I like unhappy endings, because most of the time, happy endings are rediculous and don't make any sense.
BUT: If an ending devaluates everything you have done up to this point, kills off everyone you have helped, than that's really not a good ending. A lot of people drew satisfaction and also some sense of accomplishment from doing these quests, helping those NPCs, playing the role they choose in this world, and the ending destroys it all.
The game actually mocks you at the end. It's telling you that everything you have done, everything you have accomplished up to this point, is meaningless.
And that's a really hard kick to the groin.
But let me put it this way: If Larian would have included a few lines of text, a few screenshots with the info in it, that the people you helped are save for a while, or at least better off, because you helped them, that your work mattered in some way, just not in the magnitude you hoped for, than this ending would have been ok.
I hope you understand what i'm trying to say here.
Unhappy endings, no problem with it, but obliterating your efforts in every way, is not a good idea.