You see a lot of this in junior football too, loads of amateur Mourinho's prowling the touchline trying to win under-13s competitions as if it were the European Cup Final. Junior cricket that I played in was competitive, but was better when the emphasis was on learning and developing your skills and technique.
I personally would ask the kids in the development team what they want first and then make my mind up, trying to push them towards mixing. Especially as mixing gives the better lads/lasses more of a challenge, they've to try and consider game situations when playing with players of differing abilities etc.
Also, if they've any pretense of becoming a professional cricketer, nobody (not even themselves) will care what they won when they were 13, just how much they developed and improved as a player.
You could always point out to the performance teams manager that they would never live it down if the development lot got farther than them in the same tournament.