Sci-fi and Fantasy at their cores aren't much different; you guys are simply over reacting. It's funny to hear someone say an enchanted gem with the ability to shoot forth flames is that different from a nano-flamethrower or that a dragon is much different from a reptililan alien. There are also plenty of bleed-togethers such as steampunk or just High Fantasy with technology in the mix. Airships in many fantasy worlds are an example.
If you think about it honestly, would you really think having magic in our (real) past would stunt the development of technology? Doubtful, if anything such a readily available source of energy or power would of increased the speed of it's development. Peirs Anthony does a great job showcasing just that in his Incarnations of Immortality series where magic was discovered long ago, earth is currently a bit in the future from our real present, and magic is the fourth universal power. Car dealers compete with flying carpet dealers, each with their own perks.
The only limitations on anything in an imaginary world is the ability of the writer, it's really that simple.
Now don't get me wrong, I love Fantasy much more than Sci-fi, but in the end my honest opinion is that it won't make much of a difference. I'm all for making things unique and interesting however, so if technology creeps into this game you have my vote. I'm not trying to ruffle feathers or anything, it's just that in my humble opinion it really doesn't make much of a difference gameplay-wise in the end and if done right will only make the game that much more diverse and unique.