The discussion has expanded a little, and I'd like to adress all of the issues, so this is going to be somewhat of an essay.
The Code:
The code is flawed, as is the current incarnation of the order. As many have said, the Jedi are not allowed to be human. If Atris were to show her love for the Exile she would be shunned by her fellows, and that is why she keeps it inside of her. That love becomes hate. The order, much like the sith, shun those they consider 'weak' rather than help them. This is one of the many causes of fallen Jedi (ex. Atris and Anakin).
The Sith and Jedi are often refered to as religions, which is fitting. I prefer to think of them as political parties. As Kreia implies, the Jedi and Sith are labels (Democrat, Republican) as are Light and Dark (Liberal, Conservative). They are not tangible things, and fully embrasing one is in itself ignorance. The strongest, and true Jedi have brushed both sides and found themselves somewhere in between (ex. Revan, Exile, Kreia, Luke). These are the Jedi who keep the order together when it would collapse.
The Exile:
The exile himself is quite an anomaly to me (and the council, I gather). He turned away from the force... No one in the series has ever turned away from the force. This is different than the average person who is not force sensitive, they still live with it, it governs them. The Exile turned it off. Does that make him a wound? No. Do we not all gain from the people around us? We gain information, we receive favors, that is human nature. The Exile only does this at a much greater pace, but does that mean he is feeding off of them? No. Throughout the game, the Exile can improve his companion's skills as well, they gain just as much from these bonds as the Exile does. Kreia's force bond is symbolic of this, he does not feed off of her, nor vice-versa. He can change those around him, the council feared this, but those around him can also change him. Everything the Exile does, or is accused of doing, each and every one of us does every day. The Exile just excels at it. So, what is the Exile? He is human. Very human.
He is not Nihlus. What they do is not the same.
The Council:
The council stood by during the Mandalorian Wars. The True Sith counted on this. I believe it was Canderus who said "We hadn't counted on Revan." Neither had the True Sith. Pacifism does not work, as is demonstrated on Korriban "Apathy is death." Indeed it was. When they let Revan go off to war without their backing, they doomed themselves that day. Why did they kick the Exile out of the order? As they said, he was no longer a Jedi. They did not strip him of his powers, they simply aknowleged the truth, he was no longer one of them and had no place in the order. The Exile returned and left willingly, they could have done little to force him out, he had become what they could not "He knew war". Kreia tells us many times that it is conflict which makes us strong, the Jedi council knew little of it.
Revan's Plan:
Pretty clean cut, he returned from the Mandalorian Wars with knowledge. He knew of the True Sith, and he knew the Republic had to be united. How could he unite it when he would face Exile at the council's feat? He had to take it. It was all looking great until his ignorant aprentice became too wrapped up in the Sith teachings (Revan was never truly a Sith, he wanted his followers to know the teachings, not become them). Once Malak was through, Revan's plan had been destroyed, and by the time he remembered about the True Sith, his army was shattered and it's power source destroyed. He took the only option left to him, he went to fight the war himself. What kind of war, however, is not clear. Is the war literal, or is it ideological? Maybe we'll find out next game.
The Council's Last Act(Failure):
Why, after all that had transpired, after all the hope that had been lost, would the council strip the Exile of his powers? He was not a wound in the force, though the force had wounded him. The Council was in it's dieing throws. They gave the impression that they were not only "Attempting to draw out the Sith" but also "Looking for you". They are under the impression you are a wound, and perhaps this leads them to think you are the one (though perhaps not deliberately) who is slowly killing the last of the Jedi. They are of course wrong. Yoda tells us that the Jedi can be blocked from the force, certain things can be sheilded. When this happens the over-reliant Jedi lose all of their wisdom. The Jedi had not fallen to either side of the force, they were simply blind. Like the Sith they were so reliant on the Force that, when blinded from it, they thrash about, playing guessing games. Even one of the wisest Jedi of all time (Yoda) makes mistakes of incredible proportion when his Force Sight is stripped from him.
This is the council, they are dependent on the Force. They are blind. They are fools. They are children playing with lightsabers.
This means that no real reason can be deciphered, the Council did what they could, they made the best guess they could. Just like in the new trilogy, however, that just isn't enough.
Disclaimer: Though it goes without saying, these are just my opinions. Please excuse all spelling and grammer errors.