Reusing a flag that did something different in a currently-deployed version, without having a "transition" version that ignores that flag? Dodgy, but makes sense if you're in a rush.
Needing to manually deploy code to 8 different servers? Just stupid.
Computers are very powerful when placed in certain configurations. The more powerful the system you're dealing with the more cautious you should be. If they were dealing with an app then, sure, I'd have a lot more pity for them not taking precautions - such precautions would not be reasonable to expect of them. But if you're not being excessively paranoid about such a powerful system as was deployed here, then you're doing it wrong.
I do feel some pity for them based on the fact that there's not a tradition of caution in programming. And I do agree that there were multiple points of failure in there. But testing all the code that's going to be on a system like this is a base level of caution that should be used - whether or not you intend to use that code. If you think it's too much bother to test, then it shouldn't be there - but if it's gonna be there then for god's sake test.
The real problem here is that they were using incremental deployment and did not have a good process for ensuring the same changes were successfully made to all server.
Code is either working correctly, and verified to be such by automatic testing, or it's not there. You don't leave unused code lying around to be removed later!
This is the biggest argument in my opinion against incremental deployment: it is hard to know exactly what is on any given box. Each time you push an incremental piece to a server you have effectively created a completely unique and custom version of the software on that server. Much better to package the entire solution and be able to say with certainty, "Server A has build number 123."
"Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called."
From thereon they purely and simply deserved everything that happened to them.