She transforms him back into a human before taking him to Elysium, which means he is a dead human and not a dead mind flayer but still very much not part of this world anymore. A few lines further up or down it states that Elysium-Gale attends the party as a wisp now. And yes Ao doesn't allow to meddle with things directly - might also be related to him being a baby god - so he can only help within his boundaries.
