I agree with you. Apparently a lot of people "feel" different and think that self-esteem can be provided to people without them earning it.
I have competed in chess tournaments with 800 players. The rating system was used to create rating sections and players were always allowed to play up in order to challeng themselves. The "open" section, in which the grandmasters competed, was just that, OPEN to any player of any rating. But the grandmaster who got paired with a lower rated player did not have the luxury of throwing the game to prevent hurt feelings. Such behavior is forbidden, as I recall, by the federation and a grandmaster couldn't afford the hit to his rating by recording a loss to a lower-ranked player.
If parents wish to protect their children from the harsh realities of life, they may do so. But I would think it a greater humiliation to know that one's competitor was obligated to hold back rather than to suffer a lop-sided loss.
I’m going to disagree with you. It would have been sporting for the winners to back off both the score and also to let the opponent score one or two at the end. This is only because the losing team was so obviously outgunned by the winners.