I'd love to see the drama here stop because, frankly, it's irritating to look at a thread you're watching and find five pages of wangst.
As with all good things, use in moderation. Use magic when you need to, but when mundane stuff works, use it.
Look at it this way. Like nuclear weapons, magic is probably capable of solving your problems. Like nuclear weapons, magic is entirely capable of making more problems for you.
I believe you're missing the majority of your player's points. From what I've read, not even KJ disagrees that magic should be able to generate an apocalypse. The problem is that there is no in-between level of skill or magic.
To use the nuke analogy, you've trapped your players in a room with two objects: a butterknife and a recoilless rocket launcher. There is also an angry mutant cave bear in the room. What should they use to fend off the bear? If they choose the butterknife, you punish them because they just took butter to a bear fight. This is perfectly reasonable. If they choose the recoilless launcher, you punish them because they just set off a recoilless weapon in an enclosed space, not to mention the high-explosive payload. This is also perfectly reasonable. What is unreasonable is the fact that the player is only presented with the two options.
I think this kind of a game could work very well. A year or two ago I even briefly entertained the notion of a WOT game where the players were men who could channel, thus plunging them a little farther into uncontrollable madness every time they used their abilities. However, the players not only need to feel that there is another path than MAGIC, but that equal gains can be had from a path without MAGIC under 95% of all circumstances. More importantly, the chance of triggering a magical apocalypse needs to be small compared to the number of actions taken. Currently, you seem to trigger one on a 1,6. Which would be fine if there wasn't a 1/36 chance of that happening. Multiply by 6 players, who seem to be using magic at least half the time, and each turn gives you a ~10% chance to start the apocalypse. Far too frequent.
Well, that's my take on the situation. I'd love for you to cooperate.*
*I'd threaten to pluck out your eyes, but this isn't my thread. So the threats will be minimal.