I think you're a bit off on why things happened the way they did.
(SPOILER)All the negative emotions of Pandora's box corrupted the gods. They began turning hateful and spiteful. That was a major factor, as well as Kratos being an overall unpleasant chap, though that in and of itself was their fault as well.
And he didn't return Athena's power in order to damn the world, but he gave them the ability to have hope, and move forward living without the need of the gods. His last act was actually far removed from those of a jerk. :P