It makes no sense that the empire nuked themselves with their ultimate weapon.
My guess is that it was another biological monster able to use magic, and it destroyed them after the change, as MC and the prisoner were pushed to body modification without knowing what they would become it would make sense, the control device failed or the mutant got enraged because they didn't think the experiment would change them into a monster.
Is even possible it was a nuke and they got saboutaged.
Or that other countries joined together in nuking the place with magic after a couple mutants were unleashed on the front, this ia weak theory as the last papers woudl have brought that up, but they stop to the announcement, is unlikely a counter offensive on the capital would have hit back so fast.
Following that as said above with the capital down the other cities of the empire lost direction and got attacked from all sides, the ultimate weapon was their last ace, so they were already on the losing side.
And all because they were killing monsters too good and they ran away to other territories, lose if you do, lose if you don't.
The Ace Combat theory works too, a insane leader self destructing, but is weak, the enemies didn't want to conquer and steal.