"it all disappears" has a negative infinity value, so the game is never worth playing. In the St.Peterburg paradox you lose money. In the proposed setup you lose everything for everyone. 

I fail to see how this changes the answer to the St Petersburg paradox. We have the option of 2 utility with 51% probability and 0 utility with 49% probability, and a second option of utility 1 with 100%. Removing the worst 0.5% of the probability distribution gives us a probability of 48.5% for utility 0, and removing the best 0.5% of the probability distribution gives us a probability of 50.5% for utility 2. Renormalizing so that the probabilities sum to $1$ gives us probabilities $\frac{97}{198}$ for utility $0$, and $\frac{101}{198}$ for utility $2$. The expected value is then still greater than $1$. Thus we should choose the option where we have a chance at doubling utility.