Repair/replacement of overdrilled wall
I see no benefit to cutting a section out of the wall before patching it up. You don't say how old your house is, but in the houses I've lived in that are nearing 100 years or so, the plaster can weaken to the point you can pull it apart with your fingers if you damage the surface somewhere.

If that is indeed a coat of plaster/insulation on top of the structure of the wall, nowhere will be load bearing and you will want to drill into further the brick/breezeblocks/studs anyway.

Filler will work for those holes. If though after cleaning the loose bits away you are really worried they may be too large for filler, when I have large sections to fill I: 


Clean the area with a wire brush.
Fill out with typical multipurpose/'one-coat' plaster.
Then a thin layer or two of pre-mixed finishing plaster, sanding in between.*


After painting it's invisible no matter what the damage.

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EDIT: TDHofstetter makes a good point. I can't assume thats plaster over brick from two photos. From experience though, what may seem like an extra hour or so digging back to solid material to do the best job possible, can quickly turn into a whole weekend replacing 2/3rds of your wall! If the wall is otherwise fine, and unless you know you are going to want to mount something to that area, I would still suggest filling it and coming back to it when you need to.

Someone might offer better advice if we knew the structure of the wall though, could you maybe drill further in to see how deep this layer goes, and what, if anything, is behind it?