The big theme of the telepath story arc is summed up pretty succinctly in the S5 DVD intro: it's about bigotry. It's not really meant to lead to any major 'endgame'. Another thing I noticed - immediately, I might add - about the telepath story is that Byron and his group aren't really a colony; they're a cult. It therefore makes perfect sense that they wouldn't really live up to their end of the agreement Byron made with Sheridan.
Season 5, as JMS says in the DVD intro, is an extended denoument for our characters and the station. The two major story threads - the Byron/telepath stuff and the Centauri/Drakh story - both reflect that sense of wrapping things up and showing the consequences of what happened in Seasons 1 through 4, and I don't think there's inherently anything wrong with that, although others may disagree.
Regarding Lyta, I'm only barely into the start of her arc for the season, but I'm not seeing how JMS supposedly made her the victim of 'character assassination'. She's a rather directionless character, which leads her to make some poor choices, but that's what happens sometimes.