To a very limited extent, I agree with you. In a war situation Earl Mountbatten could be regarded as a legitimate target. He was a senior politician, and a senior member of the British defence forces.
But the two children who died with him - his grandson, and a 15 year old boy who'd been hired to work the boat - were not legitimate targets. Nor was the 83 year old woman who was killed.
The IRA bombed a boat with three children on board and killed two of them. This was not collateral damage - the Earl would not have been hard to kill on his own - but a deliberate act of terror.
I agree that the death of the children was terrible. I would never refer to them as "collateral damage" or "human shields". Their deaths were a terrible and unfortunate consequence of "Lord" Battenberg's supreme arrogance. I do wish they were not involved.
"His Serene Highness Prince Louis of Battenberg" however, got what was coming to him. You don't dare the IRA to kill you and then flaunt it in their face by strolling through their neighborhood.