This I think is also a good tradeoff, and is still suitably tragic since she LOVES fighting. The big problem I have with the no touching tradeoff is it doesn't really feel like a thematically appropriate price to pay.
If we look at Karlach's life as being divided into two halves (as foreshadowed in the dev notes) Karlach Cliffgate and Karlach Demonsbane, in the story we are progressively moving from one end of the spectrum to the other. Karlach Demonsbane was isolated, both emotionally and literally, and was unable to make emotional connections (represented in the story as her being literally unable to touch when you first meet her). The first part of her quest moves her the first step from Demonsbane to Cliffgate, still a rage filled killing machine, but one who can connect with others. This continuum finally reaches its decision point at the end:
Either she can go somewhere where she can live on and fight as much as she wants, with friends this time so it's tolerable for the long term (the Demonsbane side wins).
Or she can hang up her axe and start over, with a quiet life, one where she's still capable but nowhere near as powerful as she once was (the Cliffgate side wins).
The point is I feel that there's many more interesting directions to go such as a secret, hard to get questline; a choice between sparing Gortash or killing him; or choosing between the two contrasting sides of her personality than just vapid tragedy for its own sake.
