The question that should be asked, instead of "Should I have stopped the show" - in my opinion, Yes, but I am paranoid about overhead hazards, is "Why was that gel frame not installed correctly/not safetied in.". Modern lanterns have gel frame rails with a safety clip at the top, so that all four sides are secured. With correct installation, that means that three sides are fully secured, and the TOP side has a spring loaded clip. It is ALMOST impossible for one of them to fall out, if the lantern is properly maintained and rigged correctly. In cases where the nifty little gel frame clip was not present, the gel frame should be attached to the lantern - by using a small safety wire, or (the cheaper, less permanent solution) a cable tie.
My basic rule of thumb - if there is a chance that something may fall from above head height, clear the stage, secure it so that it cannot, then reconvene. Gel frames can cause serious injury. I have seen them embedded in hardwood floor, after being hit off by a fly bar being lowered. Imagine if that was someones head.