I thought her punishment was to protect the planet, but she was still an Ancient who liked to walk around amongst humans sometimes.
I don't think Sheppard has shown much interest in Teyla romantically. I remember reading that the writers wanted that to come across but I don't see it. When a guy talks to me and shows concern I don't read it as a green light
I just don't see any spark between Teyla and Sheppard, though I think they would make a good match. Maybe in a later season.