And there was at least one vendor (Apollo Fusion) proposing a mercury thruster, although I think they have backed off on that. It would have had about 3x the impulse per volume and 2x the impulse per mass of xenon.
I think banning it now is wise, if any small operators had started using it it would have been hard to block it for a megaconstellation and it was very clear that anything release in VLEO would be coming back into the atmosphere. Right now there are no users so you aren't really penalizing anyone.
I rounded up to one ton, since we're only trying to figure out order of magnitude.
Is that a lot of fuel? 5kg times 12000 is about 60 tonne. That's the weight of two big truck approximately. In which sense is that a lot of fuel?
And besides krypton is a noble gas, it doesn't react with anything.
And searching for mercury released by coal burning comes up with 50 tons in the US, and around 250 tons/year worldwide from all sources.
I have a hard time believing that figure for the satellite, but if true, it's actually significant.
Edit: Seems like an ion engine uses around 1 ton of propellant. So, yah, I guess banning mercury for this, really is significant.