It’s never come up in the campaigns I’ve played, but- turning a bag of holding inside out is a big no-no?
Darths and Droids is, in my opinion, much better than DM of the Rings, because the DM is actually fairly competent, and the party much less dysfunctional.
It’s also willing to play around with the story a lot more. What shows up on-screen is the same, but the story behind it diverges quite significantly.
A chauffeur…and a witness. One you’ll have to pay off, or keep yourselves disgui…
::struggles to hold straight face::
::bursts out laughing::
Yeah, yeah, I’m sorry, I couldn’t keep it up. 
One, a BoH opens into nilspace which you do NOT want intersecting in an unbounded fashion with realspace, and two, the incident in question was described as a bag of devouring. Although I’ve never heard of a BoD going BOOM. (I’m more used to the Bad Stuff from putting a wand of cancellation into a BoH. BOOM indeed.)
In Third Edition (and probably Fourth), if you turn a Bag of Holding inside-out, all that happens is it empties out and stops functioning. And while there are a few vague hints about bad consequences to putting one extradimensional space into another, it’s never spelled out except for the specific combination of Bag of Holding and Portable Hole. In Second Edition, though, any layering of extradimensional spaces caused a planar rift if you were lucky, and while the effect of turning a Bag of Holding inside-out was undefined (i.e., left up to the DM), it was generally considered to be Not Good.
It was a second edition game and as you noted, everything is ultimately up to the DM’s discretion. What do the rules say about Bags of Devouring, which was what he used?
I believe he opted for the stereotypical explosion because it was easiest and the thief was acting alone, leaving the rest of the group to wait for their turn. He only recognized the peculiar details of the store when he was calculating the severity of the explosion. Otherwise he would have preferred something else to not gut out most of the settings and unused quests.
If it makes you feel better, I thought that was mean. 
I mean, seriously, the DM made him stop to string his bow? In a dungeon? Because he didn’t explicitly say he was stringing it before he went into the DANGEROUS DUNGEON? This is a perfect example of the “pants rule” - I daresay you never said that YOUR character put on his pants that morning, so… he’s not wearing pants?
Heh, reminds me of a one-shot Berlin XVIII scenario. We were in a high-speed chase of some gang members or other, trying to shoot out their wheels but mostly failing because our best shot was driving. The character riding shotgun has enough, and in perfect action movie cliché decides to switch places with the driver mid-ride. So far so good.
DM: the chase leads you across a highway overpass. Traffic is packed at this time of the day, and the bad guys bob and weave like crazy between bystander cars.
Player 1: OK, I stop shooting, can’t risk hitting a civilian.
DM: Good idea. Player 2, you’re having trouble following them through traffic. Roll driving.
Player 2: Ok… oh, I don’t have driving.
DM: … really ? Well, just roll then, I guess.
Player 2: … botch.
So he crashed the car into the guardrail and over the side of the bridge, killing us all in a flaming wreck.
Which still wasn’t his dumbest move in the scenario - earlier, during a fire fight both us and the bad guys were taking potshots at each other across a park, all hidden behind cover and not achieving much of anything except putting a lot of lead in the air and wrecking the place. We decide that one of us is going to make a dash across open ground to draw fire, allowing the rest of the squad to flank the bad guys. We draw straws and Player 2 is the decoy.
He decides to race across the square yelling : “THIS IS A DIVERSIOOOOOON !”, reasoning that the enemy wouldn’t believe him and he would have their whole attention. Except they didn’t buy such a retarded move and shot us all to hell as we emerged from cover. So Player 2 ended up being the flanking force by himself
Reminds me of the time we planned to sneak up on the bandits and catch them by surprise. Except that the party thief’s idea of “sneaking up” was to skip (literally) right down the middle of the road, wearing bright-colored clothes, while whistling loudly and off-key. The dice gods must have loved such a display of brazenness, too, because it actually worked.
I thought I didn’t have any stories to contribute, but then you had to go and mention pants.
Anyway, an Internet friend of mine designed the awesome game Old School Hack. It can be played a lot of different ways, but we tend to play it with a high level of absurdity. (Briefly, it’s like a very rules-light homage to original D&D, with some modern rules concepts thrown in; most of the rules you’ll need are printed on your character sheet).
My favorite one-shot character was an elf whose schtick was a desperate need to prove himself and was constantly getting people to dare him to do stupidly dangerous things, or else doing them without prompting. Think Jackass-level stupid. My brother was playing a Thief whose schtick was that he’d escaped from prison and was still wearing his stripy prison uniform; his most pressing goal was getting a set of normal clothes.
We proceeded through the adventure following our schtick–him moaning at the fact that everything we fought was an animal or otherwise naked, me climbing on top of (obviously about-to-animate) statues and defacing them, etc. People kept daring me to do dumb stuff, and I gleefully kept doing it.
In the fourth or fifth battle, against skeletons wearing only rotting rags, he got sick of waiting for clothed enemies, so he dared me to fight naked. I shot him a look of pure poison, and spent my next round disrobing. Oh, his glee, as he readied himself to steal my pants!
When I could act again, though, I started fighting with pants, using the Elf schtick of awesome fighting maneuvers: I whipped the pants around to lasso skeletons then flung them into the room’s convenient abyssal portal. At the end of the fight, I put the clothes back on and smirked at the poor thief.
You could have ended there and it’d have already been a great story.
Back in the day, some of you may recall, a mage had a hard going for the first few levels. None of these at-will attacks. Once you blew your one magic missile or burning-hands for the day, you might as well tumble for the +4 AC while the rest of the party fights.
I had a mage named Xerox (because said I could have the Copy spell for free), who went through the Salt Marsh trilogy with several other adventurers. Xerox was very proud to speak Draconic (this was back before every caster was expected to know the language), so when the party ran into a for-real dragon, Xerox tried to negotiate with it. He continued to try it as battle ensued. It was within an ace of being an outright party kill, with the wizard tumbling the whole time and trying to negotiate in Draconic. After the NPC elf had been bitten in half and the rest of the party was down to the hit point their mama gave them, Xerox got fed up with it, stopped tumbling, and let fly with his dagger.
One point of damage. The dragon shuddered and expired. From then on, Xerox always introduced himself as Xerox, the Dragonslayer.
IIRC, the term of choice was “a sleep spell on legs”. 
Wait, you were low enough level that it was still hard going for a mage, and you fought a dragon?
Perhaps the NPC dragonsnack was supposed to be the DM’s way of evening things up?
Edited to add:
Back the AD&D I was one of those guys that had a gnome illusionist, which, if anything, were even worse than magic-users at low levels. The first dungeon our DM sent us into after getting the party together was full of, you guessed it, undead. The party immediately nicknamed my character “Swordbait” That was bad enough when it was skeletons and zombies, but then the ghouls (or was it ghasts? or maybe ghosts?) showed up. I spent the rest of that dungeon strapped to the back of the fighter’s pack.
2E solved that problem by letting gnome illusionists – and only gnome illusionists – sucker even the undead with freakishly realistic illusions starting at first level, while casting more spells per day than a vanilla magic-user. But in 1E? Yeah, that’s ugly. Did things improve for you on the second adventure?
It was a coral dragon wyrmling. At that point in the module trilogy I don’t think we could have been more than 2nd level.
Reminds me of an epic dragon battle my party had. Epic, until the finishing move…a sling stone from the party druid with nothing left to use.
The DM’s dramatic sound effects sealed it.
player: I roll…a hit! Argh, 1 point of damage.
DM: Doink! Woowooowoowooowoooowoooooo…plop. You killed it.
True, that. But then we wouldn’t have heard the tale of LHoD’s pants-fu.
I never played 2E and sort of missed everything until 3.5, so I did not know that. No things did not improve for me much. Once we got back to town, that same fighter made the mistake of challenging the gate guards when we were (apparently) supposed to bribe them. It wasn’t TPK, but since said fighter was turned to shish-kabob while my major contribution to the party was in increasing his encumbrance…
I rolled up a paladin instead.