He was "awake", but his power was limited as he struggled with the cost of life or some such thing. I have forgotten the exact details... i should go back and check it.
But yeah, he wasn't at full strength because of it.
But still... Arc of Time v.s. Erza... hmm. Interesting, at the *very* least. I'd prefer to see Natsu against one of Sabertooth's dragonslayers, though.