Those free goblins will die alone, tired and cold. If they're lucky, they'll find a goblin fortress and assault your fortress anew. Most likely they'll be butchered in some elven outpost and lie unremembered and unfulfilled. By killing the defenseless goblins, you encourage your engravers to give them a fitting, eternal tribute in their masterwork engravings.
Also, if one wishes to kill, one must be ready to be killed. They gave up their right to decency when the came demanding your blood. When they believed themselves enough to take you on, curse the consequences, where was their restraint? They had none. They would have none, even as they killed dwarves left and right. Surely they reassess themselves now, now that they've no sword to slit your throat, and not even a loincloth to their name? If they seized a single copper dagger, and held it for an instant, what would happen, I ask? We would once again find the kindness gone from these green beasts, and they would tear towards to you until brought down by bolt or blade.
If you wish to ensure that they are not treated with cruelty, kill them but remember them. Then you give them immortality. If you deem they've not been treated cruelly enough, deny them the privilege of being killed by a fellow warrior. If you wish to degrade them totally, show them to be cowards and filth before their own kind. Show them to each other at their most deprived state, instead of letting them suffer in solitude. And if you wish to treat them as kindly as possible, do not impede them. Let them free from your traps and unbar your gates. Welcome their hordes with open arms.
An open mind is like a fortress with its gates unbarred and unguarded. Innocence proves nothing. Happiness is a delusion of the weak. Cowards die in shame. True Happiness stems only from Duty. Burn the heretic. Kill the mutant. Purge the unclean. Victory needs no explanation, defeat allows none. For the Emperor!