I would not blame the govt for taking armed action. These people are basically in rebellion.
I don't think they will go in shooting, though. This is not the government that massacred students in 1968. The faction that did that are the leftist "protestors" of the last several months.
Yes, the government should take action. They are trying to stir up trouble. Oaxaca is an easy place to stir up, I suspect. We drove south from there towards Chiapas and ran into a burning-tires-road-block guarded by armed guards. Guerillas. Pretty unstable down that way.