After the events of the first movie it doesn't surprise me that he's trying to fly under Batman's radar by only being a small time drug dealer. Of course once he was captured by Batman (and I assume arrested by the police) I never expected him to return, I'm sure he was sent to the maximum security wing at Arkham.
Umm, I hate to be rude, but this will be the second time I pointed this out: he was never captured by Batman! Or sent to Arkham! I don't know why people don't get this. At the end of
Batman Begins, Rachel tasered him and he went riding off into The Narrows on a horse.
Later, when Batman & Gordon are on the rooftop of Gotham's Police Headquarters, Gordon specifically mentions that they haven't captured "Crane or half the inmates of Arkham that he freed", to which Batman responds, "We will. We can bring Gotham back."
I don't know why people fail to get that. Again, I don't mean to be rude, I just thought after
Batman Begins it was common sense and made clear that The Scarecrow was on the loose by the end of that film. So when Batman captures him, I actually thought his limited presence was acceptable because it was really trying to reintroduce Batman in an action sequence and complete a story arc established in
Begins by capturing Scarecrow, all in the same scene.
The great thing about
The Dark Knight (or one of the great things) is how there was plenty of plot in the action sequences.
P.S. And it would also explain why The Scarecrow would be a one-time drug dealer because he was trying to build himself up again after
Begins. The novelization explains that after The Narrows he moved in with a former patient and ended up using that patient's home to re-develop his fear toxin. And when you think about it, The Scarecrow is higher in his game than he was in
Batman Begins, when he was working under Ra's al Ghul. Here, in
The Dark Knight, he was working for himself.