Even if they lost, they had recovered ground by election day, surely that means they ran a good campaign?
Steel would give Labour his support if possible, but if the arithmetic made that impossible, he would likely reluctantly do a confidence and supply deal with Thatcher, partly because that would be the only way to get a functioning government, and partly because the Liberal Party were in a rather difficult position during this period. They had looked to be on the brink of extinction at times, and a fourth election in five years, (which is what they would risk if they support an unstable Labour government) would be highly unlikely to appeal to them.
The Liberals/Lib Dems leaning left was really a thing in . Prior to that, the Liberals if anything leaned toward the Tories in the post war decades. Their manifestos were often very pro-free market, sometimes even more so than the Conservative ones, and I believe both Grimond and Thorpe would be regarded as 'Gladstonian Liberals'.