It's not unreasonable IMO. My read on the Master's reaction was more of "Oh. YOU guys would do that for ME?", rather than "Oh. You guys can DO that?", as if it were something they could do with the resources of Gallifrey at hand, where the Master could not do so otherwise (despite years of trying). I interpret it to mean that it wasn't a big deal if you were on the high council's good side.
And then like I said, they did exactly that later on. He was "resurrected" per dialogue, so between that and Rassilon's subsequent re-appearance despite being previously comfortable as a giant floating head I figured that while probably not easy or culturally cool to do, bringing back Time Lords and giving them new bodies with new sets of regenerations wasn't a problem.
Hell, in TVM the Master was trying to grab the Doctor's remaining lives with the help of the Eye of Harmony, again implying that transferring regenerations is possible with the right tech. Ditto with the creepy pulsey brain aliens in "Mawdryn Undead". Then again, River gave up "all" of her remaining regenerations to unpoison the Doctor, and there were no Eyes in play aside from her own lovely pair... But I digress.