Destroyed? Hardly. Hammerfell repelled them, the Empire retook their capital city, both sides were exhausted. The "regroup" should have started at the negotiation table, but no, they caved in and agreed to everything the Dominion wanted in the first place. That's the first step to self-destruction, agreeing to do what your enemy wants you to do. And you can play this "nobody made big fuss about Talos" card all you want, the fact of the matter is that the Empire is letting Dominion agents running around torturing and killing people for not good reason at all. Whatever respect the Empire once had is long gone and it's no surprising Hammerfell wanted out and Skyrim is fallowing and probably High Rock too. The Empire as they are presented in this game are pushovers, they are accommodationists, they dare not stand for what they used to be and I see not a single good reason to choose them.