In fictional terms, I feel nauseous at the idea of this kind of storytelling, where every world, no matter how devastated it has been and what horrible things it has been through, ends up soon seeing the light and becoming a lovely new addition to the ever-growing Federation.
While I agree Cardassia's rebuilding and reformation absolutely shouldn't be easy, I don't see the problem with Cardassia down the road - not in the immediate future, of course - joining the Federation. Even with all it's flaws, the benefits of Federation membership should be obvious to a future, hopefully reformed and democratic, Cardassia. After all, post-WW2 Germany was and is at the core of European unification.
Um... how were they losing the war? The Dominion was winning, so if they wanted to 'stick to the winner', why would they rebel against the winning side they were allied with?
With the exception of the brief offensive thanks to the Breen weapon, I don't think the Dominion was in a winning position since the entry of the Romulans in the war (or even the retaking of DS9). They may have been winning that final battle in the sense that the Feds etc. were unable to break their lines but the Fed Alliance clearly had an upper hand at that point of the war (which is why the Dominion decided to retreat to Cardassian space and shorten it's defensive lines).
What they had, in fact, lost, was independence.
I think both points are actually right here. They did lose their independence but that was largely the result of their side losing the war. Had the war been going in the Dominion's favor, I'm sure the Cardassians would be given much more leeway by the Doms and would thus have no reason to rebel.
As for the original question, i'm in the no-Dominion-unconditional-surrender camp. The Feds and their allies were already streched to the max, in no shape to risk further war by blackmailing the Great Link. In any case, I don't even think the Great Link would have agreed to the terms. The possibility of the cure wasn't enough to convince Salome Jens to end the war, it took, as someone pointed above, Odo sharing his experiences (including, importantly, his love for Kira and her love for him) and through the link 'convincing' her to end the war. Even if the Link agreed, like I said, the Alliance is already busy as it is preserving the fragile victory in the AQ and in no position to project force deep into the GQ.
Aside from that, from a purely storytelling POV, I would find the complete and forced dismantling of the Dominion unsatisfactory. It's too easy and clean and gives too much power and importance to the Federation on a galactic scale.
OTOH, I don't think the Dominion can simply continue as it is in the GQ. Despite their strength, their military loses were still significant, and perhaps more importantly, the morale blow of a first major defeat in their history and the near-extinction of the Founders as well as Odo's reforming influence should cause quite a lot of change. So, what I would find much more satisfactory would be the GQ in a state of turmoil, with the subjugated races rebeling, old rivalries resurfacing, the Dominion itself undergoing a serious inner strugle with the Feds on the sidelines, gradually reentering the GQ and balancing between helping the rebels, protecting the Founders from revenge, keeping the GQ from descending into chaos (and the chaos spilling into AQ), finding a solution for the servant races (and I don't accept just 'we'll let them die', that's not the Trek way) and helping Odo in his attempts at reforming the Great Link.
