All cards run out and all cards in play, still has card draws
As far as I know there is no official or semi-official ruling on a situation like this, but my group played it the same way you did. 

The rules state that you reshuffle your discards as soon as you need to draw a new card. As you mention the rules also say that played cards are not cycled into your discards until the end of your turn. The only exception to this I can think of is cards that are discarded to trigger another card's power - these definitely are sent directly to your discard pile.

But if your discards are empty and you have a card that tells you to draw, you can't reshuffle to have a deck at that time, so you can't draw any more cards until after the end of your turn.