I agree with Senhor Perfect, Owen got a huge reaction when he attacked Michaels at the DX PPV in December of 1997. For those who don't remember or didn't watch, he disappeared after the screw job at Survivor Series 1997 and then reappeared by jumping Michaels for revenge. The original plans was for Owen and Michaels to have a world title match at the Royal Rumble the following month but since Michaels refused to put Owen over, we got the casket match instead (which I prefer anyway since the burning casket bit was awesome.) I personally wouldn't put the belt on Owen, but I'd do a dusty finish with Owen winning the title only to restart the match in some bullshit way and have Michaels retain it then.
To answer the original post though, no, Bret retaining the belt then was the right thing. Unless you'd rather have it be Owen getting jack knifed in eight seconds than Bob Backlund.