If you kill the Ethereal Overlord, everybody dies. If any of your units are mind controlled, they ALSO get dragged into psionic hell.
That said, I've had enemies literally appear in the middle of my squad and kill like, 3 people. It's easy to understand why once you realize that, unless you're on a terror mission, the enemies DON'T ACTUALLY MOVE. They just teleport from waypoint to waypoint.