After some discussion with our association board, our conclusion sounds a lot like the consensus I'm seeing here (I think):
B/R awarded 1B, R1 declared out as a result of the MC, R2 and R3 should have stayed put without advance due to R1 not reaching 2B. So, we erred in allowing R2 and R3 to advance. The small consolation prize is that the next two batters got hits to score 3 runs, so the original award of a run ultimately didn't factor in the outcome. Like I said though, small consolation...I'd obviously rather had gotten it right the first time. Thanks for the discussion...one of the strangest sitches I've had in a while.
Of course, last night, got to apply the called strike for the batter inexplicably walking out of the batters box without requesting time...the pitch was low and a foot outside, but became strike three anyway!