Cheap flashlight designs rely on the internal resistance of the battery to limit the current. Good designs use a regulator. Your's was a cheapo and the lower internal resistance of the NMH batteries raised the current beyond what the led(s) could handle, and they overheated and died.

But a flashlight doesn't have to be expensive to offer regulation. The River Rock (sold by Target) and now sold only by Streamlight "Enduro", is a 2xAAA regulated light for $15 or less.