My guys are level 10, I have cast Shield at the start of the battle, and I take tons of damage from their arrows and my characters (who all have very good HP for their level) die in 2 turns.

Level 10 is probably not high enough. Come back later, or grab some skill potions and boost your levels temporarily before the battle.

LOL!

When I wrote my last post, I had just narrowly escaped from the losing battle, using Time Distortion.

When I started playing again today, I went to see Lord Ironfist and he actually gave me the 10000 exp reward!

There will be many battles like this... One of the first thing I learnt in MM1: If a monster is too tough, come back later.

It might be useful to keep notes of such areas.