Forbidding Federation members from deliberately interfering with less advanced cultures is a totally reasonable concept.
...Yet we never learn that this would be the driving force behind the Prime Directive.
We never hear any hero or villain say that the PD would keep natives native or help preserve uniqueness or whatever - it's always just the ambiguous buzzword "non-interference", which goes two ways. What we do see basically always is the PD stopping our heroes from acting. Yet it never seems to stop civilians from acting ("Angel One" even says it protects civilian meddlers from being stopped by Starfleet!). So it's pretty natural to assume that this is the true purpose of the PD - to keep the soldiers of the UFP from practicing vigilantism, especially of the good-intentioned kind.
Now, there'd be no harm to anybody from the act of saving the Boraalans. But that would mean Picard would be exercising powers he's not allowed to exercise - and it might well be deemed it's better to let a planet die than to create precedent for allowing the likes of Picard to make decisions that belong exclusively to the UFP civilian government and, supposedly, through democracy to the UFP people. Letting soldiers decide is a recipe for disaster, after all.
Now, the unfortunate fact is that while this explains a lot about Star Trek in general, it explains virtually nothing of "Homeward". Sergey wasn't a soldier acting rashly in an unexpected situation, but a civilian authorized to monitor a culture whose demise was known well in advance and could have been discussed in the civilian government until proper countermeasures were decided upon. Yet while Picard and his crew used the PD as an excuse for their own inaction, they also claimed Sergey was obligated to follow the PD as well, and would be punished for not having done so.
They only saved small village of Boraalans right? That means the species is pretty much dead, not enough people to reproduce and start over.
That's probably more a myth than biological reality, at least by the 24th century. If a few dozen people can't produce sufficiently diverse offspring to ensure healthy future generations, the generations can be retroactively healed and vitalized by the medical technology of the day.