Hm, we see Magus fail? When was that?
And intelligence and will are both very large factors in a battle. Yes, Lavos had an advantage in brute force, but there was far less DNA to be harvested from the ice age of 65,000,000 BC to (whenever the ice age ends), and the only intelligent creatures are humans, who Lavos is weakening himself by aiding (I imagine magic, even slightly wakens him, as did letting off some of his energy into the Flame). Yes, I'm being overly optimistic in saying that the Zealan Continent could fall all that distance and, yes, it would ause many waves, but some of it may still be above the ocean if it fell in one piece. And remember, the Zealans were intelligent. Though there would be a dark age, it would certainly not be as long as the one caused by it's catastrophic fall and the deaths of almost all of the more intelligent people.
Also, this just came to mind. The Zealans were in possesion of the Sun Stone, which does not use Lavos Energy, correct? This could be used to create a new civilization.
But of course, you do make a good point that Magus would have a very hard task in defeating Lavos, and that the Pocket Dimension theory should not be disregarded, considering the things in favor of it... a more likely scenario would be Crono + Party defeating Lavos at the Ocean Palace disaster (which can be done, but the timeline o Crono Cross seems to say that that is not how history went)