Well, to be honest, I think that making the change from the text is what put us in this weird, esoteric "conflict about the conflict" situation.
That said, I was talking to some folks and may have come up with an alternative that fixes some of the structural issues removing the elves from the parole hearing causes.
What if we make Melkor the protagonist of the episode?
Now I know that sounds nutty, but hear me out. The person who overcomes adversity by the end of this episode? Melkor. The person who is involved in every stage of the plot? Melkor. The person who the episode is really about? Melkor.
So why not just make it about him.
We start with the flashback to the original trial, explaining how his imprisonment is going to work. We SHOW him (I know I might get some resistance on this, but I think it's a special case), miserable in Mandos. We might even spend a few minutes there, showing how long he's there, we might now.
We show him being brought into the light, still in chains, and brought before the Valar for his hearing. We see his contrition at the trial, and the reactions of the Valar, then he is released. To Valmar only. Then he starts working on winning the trust of everyone around him, including the Noldor. (We have plenty to do with them also, but that is B plot.) He helps them solve some problem. Meanwhile we get a conversation between Tulkas and Ulmo where Tulkas is angry that Melkor walks free, and Ulmo doesn't disagree, but he understands Manwë's process now better than he did before the War, and trusts Manwë is doing what is right.
The climax could even be something where Melkor might appear to Tulkas to be doing something nefarious, which Tulkas then wrecks, only to find it was clearly designed as something beneficial, so the elves help Melkor rebuild.