Jesus killed them but I lost anyway?

So, I was approached by the Elves and they asked me to come with them or fight, but that it was "a waste of time" and that I should just come with them. I fought them anyway and summoned Jesus who descended with his M16 and promptly sprayed them to defeat. However, when the battle ended the story continued with me losing.

Is this a bug and/or is it really impossible to win?

They told you that there was no point in fighting them...

In order for the story to advance you have to go with them, so he game will railroad you into it eventually.

If you insist on killing elves after hearing them out, you'll have several opportunities to display your loyalty to the KKK.