It is strange that they_____（defeat）him at the match

在It is + adj + that的宾语从句中,从句用should 加动词原形,此处的should可以省略.
这类形容词只有少数几个：strange 、necessary、imperative等
此处用should have defeat 表示对过去的一种悔恨和遗憾,本应该做而为做.

It is strange that sb + (should) do sth.
So your answer is definitely " (should) defeat".
No any other possibility here!
Just like,
I suggested that you (should) defeat him at the match.
Never say, It is strange that sb + should have done sth!

should have done sth的意思是本应该做某事但是没做。
所以这里的意思是：他们在这次比赛中没有打败他真的很奇怪。