Personally, I think the whole thing was pretty awful, but I'll let it slide if there's no change to him next time we see him. I'd rather there where no references to it, but there will ilkely be some.
I'd actually rather it wasn't canon, but people will whine.
Also, although there are legitimate reasons for the CoC changing, people will often complain about him having a different race/gender. Just like people would have complained if the Nerevarine was in Oblivion.
Actually, I liked Jygalagg, and it really emphasized Sheogorath's Schizophrenic side (although, he wasn't done enough the rest of the time, but that's another argument). I would love for Jygalagg to turn back in Sheogorath again, though. Would be a great turn around for the game lore.