So, I wanted to separate these thoughts from the recap post, as I intend to keep those almost entirely descriptive of the fiction that works out in the game, rather than the rules and inter-player interactions, but we'll see what works!
After accepting a player's more reasonable interpretation of how Sleep affected a group with mixed hit dice, I was faced with the situation where the party got the drop on a lone, as yet unarmed, surprised 3rd level fighting man with a boat load of hit points (here's me realizing some of the dangers of incorporating unmodified AD&D module encounters into my OD&D game). Now, the problem here was the fact that by the combat rules, this guy probably could have eaten a round of attacks from the whole party and their hirelings, especially because he was wearing plate, and then proceeded to cause horrendous casualties while they tried to wear him down. On the other hand, by my judgement of what was happening in the fiction, you had one tough and skilled guy looking more than a dozen armed folks with weapons to his throat, and he had no idea how tough or skilled they might be (other than suspecting that they were responsible for killing two thirds of his compatriots in prior encounters).
I decided to go with the judgement more related to the fiction and play his actions as a man at sword point (though I was careful to watch for the players getting lax in their treatment of their dangerous prisoners). I found myself a little bit worried that one sleep spell "undid" a difficult encounter, but then I reminded myself of a few things: one, the party has had a couple of dangerous, costly fights with these guys and gotten relatively little treasure to show for it so far, two, that encounters don't always mean fights, a point I've been trying to convey, and three, that my role is not to set difficulty but to create a setting and situation and then adjudicate what happens from there.
So even though it goes against some of my instincts of what the referee/game master is supposed to be about, I think I made the right call. On the other hand, I feel like I may have had the character roll over and be cooperative too easily, even if he didn't want to fight. Oh well, we'll see how it goes in the future.