Not sure the mark up would be that high. When I traded in my GS450H for the ISF the difference between what they gave me and the subsequent screen price was just £3000. My car didn't have a lexus warranty at the time and they gave me the price negotiated over the phone ie didn't even see or drive the car.
I certainly didn't pay through the nose for the ISF either given its condition and mileage; with current values, and even after a year of ownership, my car would be for sale at lexus for about £3-4k more than I paid for it if it. Obviously not worth that if I were to sell it privately.
The thing is, the demand is most certainly there: I went into my local dealer this week to chat about the recal and the salesman told me that they regularly have customers asking if there are any ISFs on their way in.
Even if that £17k ISF is a bit ropey, it won't be for sale for very long.