Awesome. Great explanation, too.
Revisiting the jutsu as a whole, it's clear that the reason Itachi used it on Kabuto and knew it would be effective was because Kabuto was essentially simulating what would be happening if an Uchiha decided to use Izanagi (not accepting himself, etc). However, I think that at the end of the day, even if Izanami was designed to be a counter to Izanagi and would "only work" on people who cannot accept their own fate, it should still hypothetically trap them in at least one loop before they negate the jutsu, where Itachi will be able to deal with them outside the illusion.