Each engine is surrounded by a kevlar blast shield, in anticipation of exactly this kind of scenario. While there have been previous rockets with an engine-out capability (the Saturn 5 first stage demonstrated this, for example), I believe this is the first rocket explicitly designed to survive an explosive engine failure.
No doubt they should do an investigation to see if the cause of failure can be determined and corrected. It's possible that the fault may no longer be an issue; this was flying the soon-to-be-retired Merlin C engines, and the design or manufacturing flaw may not have carried over to the Merlin D engines. But what they shouldn't do is spend billions trying to make the rocket perfect, which has been the traditional approach. A few million + redundancy is much better.
A very important distinction is that liquid rocket engines should be shut down when problems are detected, and an explosion should not occur.
This has been done many times in history, in Saturn V and Space Shuttle for example.
But in this case, since the engines are so small, it seems the explosion tactic paid off very well.
Hopefully they can test Merlin-1D adequately. If you aim for reusability, your reliability must go up considerably. If you plan to fly something for 100 times, you probably can not tolerate 98% per-flight reliability. A lot depends on assumptions of course.
All very true. Although as I note in a thread below, I'm starting to wonder whether this was truly an explosion (ie of the combustion chamber and everything), or simply a nozzle collapse following a commanded shutdown of the engine. The latter would be relatively benign, aside from some aerodynamic effects which the flight dynamics software obviously handled without trouble.
And you're right -- for reusability, they do need to get their per-engine reliability above 98%. That would produce a mission reliability of 97.1% (assuming that 2 engines out causes a loss of vehicle, which I understand is only the case during the earlier phases of flight). At 99% engine reliability, you get 99.3% per-flight reliability -- which strikes me as the point where reusability starts to become very sensible. I have considerable confidence that SpaceX will be able to do this.
No doubt they should do an investigation to see if the cause of failure can be determined and corrected. It's possible that the fault may no longer be an issue; this was flying the soon-to-be-retired Merlin C engines, and the design or manufacturing flaw may not have carried over to the Merlin D engines. But what they shouldn't do is spend billions trying to make the rocket perfect, which has been the traditional approach. A few million + redundancy is much better.