They will have cut a deal with him already, however that deal usually means reduced jail time in an easy prison, he still has to be charged with the offences. His "good behaviour" is then taken into account by the prosecuting authorities when sentencing him.

They arrest him and publicise his arrest as psyops, any other hackers out there see that the #1 from lulzsec was caught and turned therefore who knows how many lower level hackers have also been turned, thus it increase the paranoia within hacker circles.

Of course this works 2 ways, first off it scares people off from hacking or being involved in it and makes them more likelyo to turn tail and rat out anyone they know who is undertaking nefarious online activity in an effort to protect themselves. The second response is the one they dont like, these groups become more security concious, go deeper underground, become less likely to admit new members, etc. This is counter productinve for the FBi as it makes it more difficult to catch them later down the line.

It's not just the assistance to authorities, but the fact that he brought actionable intelligence that brought arrests towards others. His getting other LulzSec members arrested and prosecuted is key to diminishing his own sentences.

Other hackers have offered help and not proven useful, only to find themselves up a creek with little to no lightening of their sentences.

You've got it wrong. Typical chan-goers don't give a shit about Lulzsec and where they do the opinion ranges from tepid to disdain. This is especially true of the one notorious for pizzas and phone calls.

If there's any kind of response to this news it will most likely be mocking.