I want to thank you for taking the time to let me know about this. I am glad you had fun and you brought up some great points. I am currently working on what I am calling a 2nd edition. I am hoping this fixes some of the issues you had.
1. Tokens. This is a great idea and would be very easy to create a bunch of paper ones to cut and fold real easy. i have seen several different ways to do them. JPCoovert has a great YouTube video on it. I might have to make a few tests and see what works best.
2. Hurt feelings. This was not something I expected. I understand that being randomly hurt can be a bit of a setback, but I hoped giving the fluke would be enough to offset that. This caught me a little off guard, and made me realize that different groups have different play styles. I might add a note this time to say that not all groups may like this so they could do away with bumbles and just give the players flukes to start (or let the GM award them like DnD does inspiration.) or maybe just have it be all story based. So your kobold got hit, but didn’t take any damage. Was it the getting hit or taking damage that caused the issue?
3. The big one is the DS system. It kind of works the opposite of what I would like because as you damage an enemy it makes it easier to hit the enemy and harder to take any damage, which kind of gives the opposite of narrative tension, which is what you saw. So for version 2.0. I will change how that works. The plan is to switch to a system similar to “powered by the apocalypse” so a giant spider might have a DS of 3. The player rolls (2D6) and depending on what they roll+stats they may get a failure(<6), mixed success(7-9) or a success(10+). These numbers are always the same so a 10+ is always a success, meaning players don’t need to compare number to number anymore. On a success or mixed success the DS is reduced by 1. So that giant spider will take at least 3 player turns to defeat. This gives easy numbers, easy goals, and also adds a teamwork element. This also means the GM can do certain actions at certain numbers. Think of them like boss phases. At DS 1 the spider starts spraying web everywhere. Oh no all rolls get -2 now.
4. I do like the fleeing monster idea. I might add it as an option like on a 12+ roll the monster flees. Or a Success roll when it is DS2 or lower makes it flee.
Can I ask what adventure you ran? Did you make up an adventure or did you run maybe a story from MurkMire?