James,
Gaddafi would have gone a killing spree that would have made Stalin puke.
Um, no. Not even close. First off, there weren't tens of millions of rebels standing up against Khadaffi. So, that part of your assessment can't even hold up on a theoretical basis. Secondly, Daffy Khadaffi was well known for his bombastic bombast. The press happily flocked to him because they could count on his over-the-top speechifying. He's the guy who came up with that wonderful "Line of Death!" bombast back during the Reagan years. So, the prospect of the guy actually implementing his threat was never terribly real to begin with.
Lacking any outside intervention, the rebel threat would've been crushed. And it's not the first time Khadaffi had to do that in that region. It was - and is, still - a hotbed of Islamist fanatics. Khadaffi was long at work with such fanatics even as he allied with the Soviets and was anti-Western in his actions. The problem he had with the Islamists was that the Caliphate they wanted to set up wasn't one with him as the Caliph. And for a grandiose tyrant like Khadaffi, that just wouldn't do. So, he opposed the Islamists at every turn. This, long before 9/11. Hell, Khadaffi was one of the few Arab leaders to express official regret to the US over the attacks.
After the US knocked over Saddam's regime, Khadaffi read the writing on the wall and saw it written in Saddam's blood. As he didn't want to be next, he decided it was time to "come in from the cold" and ally himself with the West. He was still a tyrant but he was now a tyrant on our side. To sweeten that deal he voluntarily turned over his entire WMD program to the West. Included in this was his nuclear weapons development program and that was something the West had no idea was as advanced as we found it. To add to the joy, Khadaffi also turned over the names of all the vendors and suppliers and arms dealers who'd helped him build-up that WMD program. Then he opened Libya to the West to set up its "black sites" for interrogating the Islamists we'd captured. All in all, Khadaffi made himself exceptionally useful to the West.
And he provided a most excellent role model to other tyrants of what could happen if they chose to play along with whatever the West wanted.
From the West's perspective, yeah, the guy was a tyrant and a thug. But he was an old tyrant and thug. He'd gotten his glories and was seen as wanting more to die in his sleep among his many wives than anything else. Letting him remain in place was seen as preferable to any alternatives. At least if he died of old age the transition to a post-Khadaffi Libya could be better managed. Particularly as it was about the most secular and Western oriented of the major Arab states.
Lacking a US & NATO attack or support of the rebels, Khadaffi would most likely have gotten that chance to die peacefully in his sleep in his palace. And now there'd no doubt be the expected whining from certain quarters that the West was interfering in the Libyan people's affairs when it came to choosing who should rule Libya in the post-Khadaffi era. And if the world knew of US Ambassador Chris Stevens it'd be from the press conferences he'd be giving in Libya about how the US was "looking forward to assisting the Libyan people in their efforts to build a modern democracy for their country..." and nothing more lethal than that.