Downside: All judges will probably move prisoners to the hole (the oubliette thing you describe), making it harder to escape than already is.
I think few Judges will opt to move them to the 'House Arrest' kind of thing, to be honest.
Depends on the honor cost. Honestly, I think house arrest would become relatively common, and offer a good substitute to the "immediate release" agreements many governments sign with each other.
