It's a travesty of justice on a massive scale. However, from the point of view of the British legal system, it appears that Jack Straw had little choice - if he had opted for extradition, the chances are that Pinochet's legal team could have challenged and won, based on the law that the alleged crimes have to be in the last ten (?) years (need to check up on this).

Nevertheless, as far as I'm aware it's not the end of the story. There is still a chance that other European countries or even Brussels can hold up proceedings. Remember, the British legal system is still under the jurisdiction of Brussels, even when the Home Secretary himself is involved in the case. So much for British sovereignty.