Has Massive Damage been a party killer?

I ran a short demo playtest with the new combat rules and the PCs would of come out successful if not for the massive damage at 20+ hp. Because of that they playtest ended up being a TPK.

Is frequent death a problem in anyone's established campaigns or tests due to massive damage?

They had 3 Level 8 characters and managed to cleave through the 1st level fodder Picts, but got hammered by the Grey Ape and Shaman who were behind them. The Grey Ape's gore (AP8) crit the soldier with Breastplate Armor and he failed his fort save vs. DC27. The Barbarian/Thief went down when the Scholar was cornered and let loose his defensive blast, which did more than 20 damage. Another Left for Dead. Both these people had 80+ hit points starting and still did at the start of the encounter.

(We'll ignore the encounter where the Level 8 Barbarian walked into a Ghost Snakes hole alone....crit on the bite, failed poison save, failed massive damage check...Left for dead...) I wouldn't of expected him to survive a solo fight with that at all though, but being a playtest the PCs were all fired up for combat....
Have yet to see any PC die of massive damage, though a few NPC's have gone down to DB. From your example you had 2 crits and DB. Well crits are crits and they should be deadly. As far as DB goes, me thinks perhaps you had the sorc fire it off too quick, I"ve yet to have or see a sorc use a DB with more than 5 PP left. (NPC sorcs only, who were able to get alot more accomplished with the PP"s rather than "wasting" them in a DB until the very end when they were surrounded.)

In short, no it has not been a problem, yet...
The crit can be discounted -- crits are meant to be deadly.

I don't think the DB was premature at all. The scholar was fighting the 2 remaining enemies and they got too close. In the future, your wiser players will know better than to close with the sorcerer.

Need I remind you:
Conan gazed over the billowing waves of spears and wondered what new horror the sorcerer would invoke. Somehow he felt that Natohk, like all his kind, was more terrible in defense than attack; to take the offensive against him invited disaster.

R. E. Howard, Black Colossus

This has not become an issue for us yet but is thoroughly appropriate. Sounds like your players had a bit of bad luck and had their asses handed to them. Such is the way of the World of Hyboria -- at least their deaths were heroic!
About twice my character has been smacked against a wall from 60 feet away, and lived. Then again, that could be just pure luck.
The DB definitely wasn't premature. The scholar backed to a 5' corridor so he couldn't be flanked, had 6 PP left and was smart enough to know an Ill Fortune wouldn't help the situation, so BOOM.

Although I did notice the Barbarian/Rogue was getting quite a few Massive Damage saves against enemies through use of sneak attack. 1d10+2d8+3(str) gets above the 20 point range frequently enough. I don't mind that, those should be quite deadly.
Setting aside issues of crits, DB's, and sucessful sneak attacks from high level Thief's. All of which are meant to be quick kills in Conan's rough-and-tumble world.

The key to avoiding massive damage is Armor. That's what it is there for really, the fact that it keeps you alive longer is just gravy. If we just look at weapon damage, Str damage, and possible power attack damage then what we see is that it is real easy to reliably deal 15-18 points per hit, kinda hard to reliably do 20-22 points per hit and real hard to do 24 or more points per hit unless you really outclass your opponent and PA for all your worth. The entire point of armor is that if you are walking around with DR 6 (not unreasonable: scale corselet + steel cap = 140 sp) then a hit that deals 25 points of damage suddenly only does 19 and you dont' have to make a massive damage save. A character who gets a decent medium armor, uses tacticts like fighting defensevly (to make sure the opponent can't afford to PA) and manages not to get flanked by a Thief really only has to worry about crits and Mighty Blows. Then again he could just say "screw it" and charge into battle hoping to kill the other guy before he gets killed himself. *shrug* Both seem very Conanesque to me as both capture the desperation and brutal harshness of combat.
Hasn't been an issue in the games I am playing or running, BUT we tend to make combat as sneaky and nasty as possible. Also, the stat difference between normal schmoes and characters (25 pt normal people vs 36 points (on avg) for the PC's) means that I regularly send characters against villains that are 3-5 levels higher than the characters, and outnumber them with a slew of low level npc's to boot.
The only time there has been a issue is when a second level Bbn PC decided he could take out 30 or so 1st level soldiers that had the drop on him. Even then his chain shirt kept his skin in one unconscious piece until he could be "Sacrificed" to their god (he used two Fate points for that encounter). There was whining aplenty that night, I tell you what.
The original intent had been that he surrender (as Conan does, quite regularly to as few as 4 or 5 soldiers with the drop on him.
Afterwards I was told it was an incredibly tense scenario that was a pleasure to participate in, but at the time you should have seen the outrage. :D

BTW, the player only lived through the knockout because of the dice rolls AND he was kept alive ONLY for the sacrifice. I have yet to achieve a player kill, but they always wind up wounded, that's for sure. I am also nasty about massive damage causing game effects like cracked ribs, broken arms and bad limps that last for weeks. The PC's are generally investing in Great Fortitude by third level or so.