I wouldn't feel really bad.

One of FFXIV's blessings is that "factions" aren't a core part of the player's investment in the game. It's not like WoW where your identity and 40% of the WoW storyline is defined by your faction identity. Nuking a city as a part of the MSQ is possible, and I'd welcome it if written well. A quest like WoW's "A Flicker of Hope" where you run around a burning city, trying to save as many NPCs as possible, would be very impactful. That said, it'd be pretty awkward to casually return to your nice and comfy housing block when only just a few miles away, the main city is in ruins or captured.