I'd say this sounds okay to me. Of the various different ways it could have ended, this sounds like a good compromise and I think it works. I've no problem with losing Illidan... I knew something was going to happen to him. They weren't going to bring him back and keep him around as a permanent new hero character Khadgar style. It seemed obvious to me he was either going to die, turn evil again or disappear Kerrigan-style.
I like the irony that he will become a jailer himself now. It's obvious they just wanted to bring him back for an expansion so he gets a more positive good-guy ending instead of dying a villain.