You aren't actually supposed to fight the whole thieves guild, you need to choose the proper answer in the dialogue. This was one of our first quests ever, we need to upgrade it a bit.
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Yeah, turns out the thieve's guild is a bit bigger than I thought. I was kind of under the impression this was a smalltime joint and not The Thieve's Guild (tm), since there's not too many people visible onscreen when you walk in, and the fight looks winnable until more enemies teleport in.
Personally, I thought it'd be funny if you got some sort of joke ending for killing enough of the bandits. ie, a very tongue in cheek story where you heroically kill each and every bandit in the city and save the world (tm), complete with a CG drawn with the artist's off hand in crayon depicting people celebrating you as the legendary bandit killer.
... or just give the player an instant game over, like if they try to immediately expose Lady Wolf to Sa'id.