I don't belive that this is the official rule, this must be a chess.com rule.
I'm afraid that *is* the official rule. A game is drawn when the player who runs out of time cannot checkmate by *any* sequence of legal moves. Any legal sequence that could lead to checkmate, even if it would be suicide for one player, means the player can win on time.
So it would have been a draw if the losing side sacs his knight? because the winning side wouldn't have sufficent material?
Correct.

Maybe since a series of blunders like this allows a check mate, it only auto-draws on the offer if one of the knights is taken.A series of blunders, lol