Well Gandalf did defeat the Balrog, he just ended up dying in the process. And it's a good thing he ended up dying. As 'the old' Gandalf would not have been able to handle Theoden nor Saruman:
Quote:
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"...the old Gandalf could not have dealt with Theoden, nor with Saruman."~Letter 156
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Then as Letter 156 talks about it's Gandalf's sacrifice and obeisance to 'The Authority' that gets him sent back with some power uppage to deal with Saruman. As the old Gandalf would not have had the power to do so. So, had Gandalf lived and continued on with the Fellowship, he would have either had to die, and be sent back with some extra power, or I think a whole crap load of problems would occur. As Gandalf the Grey would not have been able to help Theoden nor boot Saruman from the Order.