Not quite the "blowing of a big hole".
What the ruling does all but confirm is that the plethora of different schemes seem to be designed to be confusing. Despite what was thought originally, Reilly was neither on mandatory work activity or the work experience scheme when she was forced on pain of losing her JSA to work at Poundland. She was in fact on the "sector-based work academy" programme, which is voluntary, or at least is up until the point you decide to go on it. After that, regardless of whether it turns out not to be what you expected or completely pointless in terms of helping you get a job, if you then don't complete the placement you're liable to be sanctioned.
In Reilly's case, she was misled from the outset: told that if she accepted a place she would get a week's training and then a guaranteed interview, her placement was in fact for six weeks. Told wrongly that it was now mandatory that she took it, her work in Poundland merely involved stacking shelves and washing floors, with no actual training whatsoever. While for some such a placement would be helpful, Reilly already had retail experience and was doing voluntary work at a museum. Her placement was purely for the benefit of Poundland, not the both of them.
If anything Wilson's proposed placement is even more troubling. Having been on JSA for two years after losing his job as a HGV driver, he was to be put on the community action programme, where he would have worked 30 hours a week for 6 months purely for his JSA. Indeed, although the placement was for 6 months to start with, it was essentially open-ended; it would only end if he found a job or dropped his claim. That working 30 hours a week on pain of losing his JSA would drastically limit his chances of finding a job or attending interviews seems to be the point rather than a flaw: after 2 years you are essentially being written off, regardless of the reasons behind your failure to find a job. Either you work for far below the minimum wage indefinitely, or you're deemed worthy of nothing.
The only difference it seems between mandatory work activity and the community action programme is that CAP becomes all but compulsory after two or three years, while you can be placed on MWA at any time and the placements are shorter. Both are equally objectionable, especially when the definition of "work of benefit to the community" is stretched to the limit. Wilson's placement would have involved collecting furniture, renovating it and then distributing it. Very worthy, which begs the question of why the work can't be properly paid, or whether someone placed on the scheme is taking a job which would otherwise be fully paid.
Which is the ultimate objection to the vast majority of the government's workfare schemes. Some of the firms that were using them to blatantly fill positions which would otherwise have been at least minimum wage jobs have been forced through shame into dropping out. With even the best will in the world, at a certain point training stops being just that and becomes work, which is when it should start being paid. It's not just as we've seen that mandatory work activity doesn't work, it's actively counter-productive. Doubtless as it is that some placements will have been highly beneficial to some individuals, best practice would see that everyone knows exactly what it is they are agreeing to go on, and that they have an opportunity to pull out if it isn't for them, for whatever reason, without being sanctioned, at least on the first or even second occasion. At best it currently looks as though the government is using JSA claimants as below minimum wage labour to keep the jobless figures down, while at worst it's writing off the long-term unemployed as fit only to work unpaid. What a thoroughly despicable paradox.
Update: See Robin's comment of Lib Con for some clarification on what exactly was found unlawful.