The rules certainly imply that the ruling was incorrect, but nothing says for sure. A preponderance of circumstantial evidence weighs heavily against you, however.
To begin, Thomas is correct that the spell hasn't ended, so the feather fall aspect of the spell does not officially come into play. Instead, we are left with dealing with the “realities” of magical flight, which are largely left undefined. But we do have some hints.
For one, nothing in fly says that the spell requires conscious effort to stay aloft. In fact, it explicitly says that it “requires only as much concentration as walking.” Crucially, unlike the bird out dragon Thomas compares this too, the spellcaster is flying with magic, not by flapping wings.
This is critical, because the Fly skill talks about wings a lot:
If you are using wings and you fail a Fly check by 5 or more, you plummet to the ground, taking the appropriate falling damage.
If you are flying using wings and you take damage while flying, you must make a DC 10 Fly check to avoid losing 10 feet of altitude.
If you are using wings to fly and you collide with an object equal to your size or larger, you must immediately make a DC 25 Fly check to avoid plummeting to the ground, taking the appropriate falling damage.
The Fly skill lists no circumstance under which you fall if you are flying without wings. The fly spell, itself, suggests that only getting caught in an antimagic field or similar would do it. Moreover,
You generally need only make a Fly check when you are attempting a complex maneuver.
An unconscious character is not attempting anything. What happens when you are unconscious, and cannot actively dictate what happens with your flying, is unclear, but it definitely does not seem to be that you fall.
Personally, I would have expected that, once unconscious, the target of fly would float, in place, until the spell ended, and then the feather fall effect would trigger. That appears to be most in line with the way the spell works in general: the spell has done serious protections against falling.
However, it is true that Hover is a DC 15 Fly check to perform. So what does the Fly skill say about default behavior?
Without making a check, a flying creature can remain flying at the end of its turn so long as it moves a distance greater than half its speed.
This suggests that you just continue moving in the last direction you were going in. Take the distance and direction of the last straight-line segment of movement the creature had, and replicate it on each turn, moving at least half their speed. A downward trajectory might involve a collision with the ground, but at nothing like falling speeds. The spell is obviously counteracting the effects of gravity so no acceleration would happen.
Actually, considering that the spell automatically protects you from falling even when the magic rubs it out is forcibly ended, it's also just as reasonable to say that magical flight defaults to drifting downward safely if the user is unconscious. This is not the same as the explicit provision in the fly spell for the spell running out or being dispelled; this is a conjecture about the nature of magical flight. Definitely possible.
But nothing actually says how magical flight works in this case – it just all seems to be very strongly suggesting that magical flight is quite safe and it’s rather difficult to actually fall and hurt yourself while using it. Ruling that magical flight requires conscious effort to stay aloft is possible. I just don’t consider it a particularly likely one, and would be annoyed at a DM who sprung it on me, since I’d consider any of the above more in keeping with how we know the spell works in other situations. That goes double if the falling damage risked the character’s death: that would mean that you, as DM, specifically choose to try to subject my character to random death, in a situation where many other possibilities exist and this one seems least likely.
That said, if it is established ahead of time that this is how magical flight works and this is a risk, then I'd have no issue. Consider: this spellcaster knows magic. They know this spell. I would expect them to know how it works. The player certainly thought he or she knew how it worked: they assumed the feather fall effect protected them. If that was not the case, their character would know that. Thus, there is also a reverse-metagame issue here, and that's the kind of thing that a DM should give warnings about.
So, in conclusion,
the ruling was conceivably possible, but ran counter to numerous statements about the nature of magical flight in general
several other rulings, including both suggested by the players, were much more in keeping with the various statements about magical flight
springing an unexpected ruling on a player in a situation where it risks getting their character killed is poor form, and players may leave the game if they perceive the game as being full of “gotchas,” as many players do not like that style of play
the character would have known about this problem, even if the player did not. As DM, you should have done something to warn the player in that case.