This is exactly right. No four- or seven-game stretch "defines" a coach or player. Everything that has happened up to this point (except for the end of this season which, if anything, reflects well on him) has already been factored into the extension decision.
Further, casting last season's playoff loss as being out-coached is a gross mischaracterization, IMO. Roy's injury allowed Gentry to make the move to put Hill on Miller after Miller lit them up. Batum's injury further reduced Portland's (and McMillan's) ability to counter. Gentry didn't make some brilliant move that McMillan didn't counter. Gentry made the obvious move (put his best defender, rather than his worst defender, on Miller and collapse his team defense when Miller penetrated past Hill, forcing other Blazers to beat them with shooting which they didn't) and it was enabled by injury...not McMillan's coaching.
I think McMillan is an average game-planning coach and one of the better NBA coaches at keeping his team focused. That makes him valuable to keep around unless a top-tier coach (like Adelman or Jackson) became available and expressed interest in coaching Portland.