You don't think such a character would change after hundreds of years of exile/wandering/etc., no longer in the service of the gods or trying to kill them, no vengeance to achieve, no wars to fight, no family to avenge or save
No. People like Kratos really don't have these kinds of epiphanies. Kratos is far beyond some troubled guy with anger issues, he's a genuine psychotic and all the games have fed into this characterization of him.
In real life, serial killers (and that's basically what he is) generally don't stop unless they've been caught, because they like killing. And that's literally everything Kratos has built his life around. People like him don't grow empathy, because empathy is poison to people like him.
But okay, this is fiction. We can hypothetically have a character that your describing, a serial killer who grows a heart. But if Kratos is going to have this redemption arc, he needs to actually own up to his mistakes. And I don't see that. They're talking about how Kratos thinks being a god is a bad thing, like a disease, because that's waht he thinks is the cause of his misery. No, asshole, it's not being a god. It's you. Your choices, made for your selfish reasons.
I guess what I'm getting at is that the thing your describing is such an incredible departure from the character we knew that I don't think there is a believable way for Kratos to actually get to that point. To actually not make him utter human filth, he would have to change in ways that are basically unrecorded in human behavior.