Like other ponies have said I think turning him into a statue is the only way of truly getting rid of him. It's true, all Chaos thrived to do was make everypony's lives miserable and make the world a giant mess. Since banishing him wouldn't do anything at all (you really think he'd just go peacefully anyway?) and there's no way to limit his power, turning him into a statue is the best punishment fit for him, so he simply can't do anything whatsoever.
Hopefully he isn't conscious while he's a statue.. now that would be brutal. But then again it seems he was still "alive" when he was sealed the first time, though maybe his powers reawaken himself when too much discord is nearby.
Instead of killing him per say they should of done a big Dragon Ball Z effect after he got struck by the Elements of Harmony. Just a big giant white flash, him screaming, then all of the sudden POOF, his entire existence is gone in a giant cloud of smoke. Then they could show him down in the Home For Infinite Losers plotting his revenge.