Yes, it would have been the right move. You keep trying to argue that DWS had more power than Clinton and Obama, that if she had retaliated by trying to burn the party down, she would have been successful.
If DWS was really holding the party hostage then yes, fuck her. If she was going to threaten the election because of her own pride then yes, fuck her. The party would not have rallied around her in opposition to Obama and Clinton. If she really wanted to play that game, she would have everyone, the president, the candidate, the rest of the party, the media, everyone attacking her for trying to hijack the party and she would have been ground into dust and Clinton would look all the stronger for it rather than bending over for her selfish demands.
Yes, some times you give people placating meaningless positions to make them go away. Some times you tell them to fuck off. It does not matter if you believe it was meaningless, it still made Clinton look weak and corrupt regardless of the truth.