don't sweat upsets like this, especially in d2/d3, they happen all the time. i've only ever had 1 d2 program for more than 5 seasons, and i had a pair of seasons where the first year, i lost in the 2nd round as the #1 overall, looking to win the title, and the next year, as a #1 seed (not #1 overall but i don't think #4 either), we lost in the first round. if you make the NT regularly, upsets like yours are going to happen fairly often.
now, specifically, the reality is, you didn't have nearly the advantage you thought you had. your opponent was damn good for a low seed, which happens regularly, especially in the lower divisions. they were actually much better than you on offense. players have 4 fundamental abilities - off, def, reb, and guard skills, and you have him crushed in def/reb but he has you big time in off and guard skills. plus you don't take 3s which are most efficient form of offense, especially in the lower divisions. if i was him, i would feel like i had a good chance of upsetting you.
you really are totally out of whack when it comes to marginal returns, which is roughly what the entire game boils down to. you could lose one great defender and your team wouldn't suffer that much - your best defender is only 20% of your defense while on the floor. on the flip side, a great scorer would elevate your team big time. a great scorer could be 40% of your offense, taking offense away from some pretty mediocre guys, thats a massive upgrade team wise, if you traded 1 for 1. its fine to focus on ath/def but that is not the way to win championships. its true that defense wins championships - but that is under the assumption that you are good to great at everything - and given that, what do you want to be totally elite in? defense. but if you aren't very good to great in everything, and you want to win a title, there is no point in being elite on defense. well rounded players suck. well rounded teams rock. i think you can learn a lot from this loss, you have to look at the marginal value of each player in terms of the 4 abilities (and really offense should be broken into per offense and lp offense in the way of thinking of title seeking coaches).