Given the alternatives, what else should they have done?
Stormed the place openly? Fifty terrorists, and 700+ hostages, thats definitly not a good combonation.
Let the terrosists rot, untill they got fed up and started shooting, or maybe blew up the building?
The outcome is probably not what could have been ideally acheived, but when you compare it to the other more obvious solutions, it wasn't bad.
Perhaps the russians did screw parts of it up. Perhaps they could have done better, but they also could have done a whole lot worse.
If the russians DID use BZ gas, then it's no surprised that all of the hostages had to be hospitalized. The effects of it last for days.