The Ending ( Spoliers )
I know this has been discussed many times but I want to get into some key elements.
The ending is plain and simple. The people made the wrong choice. Linoge stated the key line at the end. If I remember correctly I think it was " Perhaps it was you who tricked yourselves " Forgive me if I mis-quoted it.
Linoge is built on tricks, lies, deception etc....... He basically tricked everyone into thinking that they made the right choice.
Would the townspeople have been able to defeat him if they said no???? A very simple answer " Yes ". Now you have to look at the point of view of that answer. Sort of like Obi-Wan telling Luke that you need to look at things from a certain point of view.
Linoge wanted a child. The rules stated that he could not take a child. the child needed to be given to him. So just by saying no, he lost. He lost because he did not get what he wanted. You just won. Would there be consequences??? Perhaps! It is possible that he would kill everyone. Well the people would still win. Whatever Linoge is, he came straight from Hell. These people if they didn't already believe would now know that if this demon came from Hell then there has to be a Heaven. By saying yes and having this innocent child become damned for thousands of years is not going to have a positive effect on your soul.
Now this is just my own opinion. I think that Linoge would not have been powerful enough to destroy everyone. Clues during the movie showed that he was able to manipulate some people and not others. Linoge stated that he was getting older and most likely weaker. This is where the lies and deception come into play. What is a better way for someone to be able to destroy an entire town. Well, make the people believe that he could destroy and entire town. Just because you believe it, doesn't make it true. Perhaps what could have made Linoge older and weaker was just to believe that we wasn't as powerful as he stated.
So, you add everything up.....Linoge had to follow rules. Linoge was getting older, weaker, and he was not immortal. This tells me that a town that had strong faith, stood together, and truly believed.........could have defeated Linoge!!!