It all depends on how an engine fails. A failure to provide thrust is survivable with more engines. But a vulnerability that causes a fuel line to go boom, taking out the whole rocket, is made more likely by having more engines.
They realized that the "corner" engines were doing more work, and if one of them failed it caused larger issues than they were expecting.
However in the "round" layout, all of the engines are doing the same amount of work and have a similar amount of control over the rocket, so one failing can be more easily compensated for by the surrounding engines.
Engine didn't explode, it detected an anomaly and shut itself down. Here's spacex's statement concerning the event-
"Approximately one minute and 19 seconds into last night's launch, the Falcon 9 rocket detected an anomaly on one first stage engine. Initial data suggests that one of the rocket's nine Merlin engines, Engine 1, lost pressure suddenly and an engine shutdown command was issued. We know the engine did not explode, because we continued to receive data from it. Panels designed to relieve pressure within the engine bay were ejected to protect the stage and other engines."
Does anyone have details on this? I'm just curious how these work because it sounds fascinating.
The Soviet N-1 failures had more to do with rushed, shoddy engineering in a desperate attempt to catch up to Apollo.