Pegs wanted to make a big splash and take the big chance that Ralph/the Bills were always afraid to take. In fairness, the fans were demanding it as well. Promoting Schwartz would have been the cheap, safe play. In hindsight, it would have been the right one. The defense was a juggernaut, and there was not reason to mess that up. Schwartz could have brought in someone to manage his defense.
Possibly we don't acquire/start Tyrod if this happens? Possible. Might have been just as bad a year with Matt Cassel or EJ at QB. But I'm pretty certain the defense would not have slid to the extent it has.