It was most certainly a humiliating defeat. They had taken (correct me if I'm wrong with any of these) Rihad, Taneth, Skaven, Anvil, Leyawiin, Bravil, and the Imperial City. That's The Imperial City. An astounding achievement. And they lost it all in a manner of weeks. The Dominion's military was probably beyond humiliated with their inability to accomplish anything, a feeling that was probably compounded by their loss of Hammerfell months later. And that was a Redguard victory without any Imperial support.
Perhaps you and I just have very different standards for embarrassment, and defeat. The Dominion didn't lose anything. They simply didn't gain anything. I wouldn't consider that embarrassing. Consider Linsanity. For a short while, Jeremy Lin stole something amazing from the rest of the NBA - the media spotlight. He went from not having it at all, to dominating it, to barely ever receiving it again. Was this embarrassing for him? No. For the remainder of Jeremy Lin's life, he'll look back to that brief conquest with pride, thinking, "hell yeah, I was on fire! It was awesome, too bad I couldn't make it last, I guess I'll just have to keep on trying to get a little bit of that back."
Second, you're time scale is completely off. They held Leyawiin and Braviil from 4E 172 on, acquired the Imperial City in 174, and lost the IC in 175. They hardly lost it in "a matter of weeks." And they
withdrew from Hammerfell after five years, not "months".
Finally, they have no reason to be "beyond humiliated with their inability to accomplish anything" since they did, in fact, accomplish a great deal. They successfully committed "all manner of atrocities" against the people of the Imperial City (which most likely means far more than just killing people for the evulz), they devastated occupied regions, they exercised sufficient controlover their occupied territories to
almost completely eradicate the Dark Brotherhood (something other agencies must have tried and failed to do before), gained political leverage sufficient to obtain the Emperor's compliance with the White-Gold Concordat, and did who knows what else while occupying Cyrodiil. That's a whole lot more than is accomplished in the majority of wars.
Sure, they managed to divide Hammerfell from the Empire (though that was far from the original intent). And, sure, they managed to get one of the things they originally desired from the Concordat - the infiltration of their agents throughout the Empire to persecute Talos worshipers and humiliate the Empire by doing so. But this was a pre-war demand. And while certainly such demands were meant to provoke war, they're far-cry from the gains they made during the war. That is, the almost complete subjugation of Cyrodiil and Hammerfell.
They also caused unilateral domestic economic devastation, but that's just a detail. The big picture is this: sure, the Thalmor didn't get absolutely everything they ever could of wanted from the war, but they still came out ahead both in absolute and relative (to the Empire) terms. You can win the lottery without getting the jackpot, and it still counts as winning.
And if we're using real-life comparisons, the Dominion was living in a bubble that popped, and as a result they fell faster than U.S. home prices (zing!).
That's just a really poor metaphor. Tamriel is pre-speculative markets, AFAIK. But it would be awesome if Alinor wasn't, and there had been a sort of South Sea Company type financial crisis after the Battle of the Red Ring. However, it's incredibly unlikely that anything like that happened.
If anything, the Concordat was the achievement of the Thalmor's ambassadors (an entirely un-glorious and disrespected branch of the Altmeri government, if YR is to be believed) as they were able to let the Dominion save face. Still, while the current concessions might seem great, its quite far from the position they held at the height of the conflict.
The Author of The Great War, an important general who served in the conflict, disagrees with you on who deserves credit for securing the Concordat for the Empire.
Also, yet again, a hill may not be a mountain, but it's still a finely elevated place to stand. Total victory isn't the only way to come out ahead.