And I think wrath of Khan to some extent guts Space Seed. That hopeful moment at the end of SS is ruined.
I think Kirk giving Khan and company a chance of building a new world is a good ending, as some one else mentioned it is analogous to Hornblower dropping someone of on an island. It is sad th Kirk then has to suffer for this, but Khan acted by Montabaln is such a great opponent for Kirk in the movie.
After all if Kirk had sent him to jail Khan could easily have been freed or escaped to come back and seek revenge on Kirk.