[Sephiroth]

Indeed. Saruman was a powerful Maia, his will was too great to be bent wholly to that of Sauron (this was the case even with Denethor).

In reference to the original question, limiting the powers of the Istari unquestionably prolonged the war. But it was still a wise decision. Contrast the outcome with that of the War of Wrath, when 'Beleriand was broken and laid waste'. Besides which, the existence of the One Ring made Sauron more vulnerable to a small force (say, two hobbits?) than to all the armies of Middle Earth.