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Does that work give you any benefit or is it a glorified minigame just to pass the time and shorten the sentence?
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You're being "punished by the system" for not fighting back too. You'll lose more stuff if you refuse to fight, while a potential harassing "criminal" would lose less if they were to die. So the whole system doesn't quite work by the logic of our real lives.
If the prison work gives you benefits - you're rewarding killers. If it doesn't give you benefits - you're wasting people's time, on top of having already punished them by the current system. And if you suggest replacing the current punishment with the prison - you're just wasting their time instead of having a tangible punishment. And depending on how prison's gameplay is designed, I'd assume most hardcore PKers will find a way to automate that gameplay and won't even see it as a punishment at all.
And then, if you decide to have something like a "3 strikes and you're out" system, where the more kills you have - the higher the prison time, you're pretty much removing owPK potential. Especially if the jury can be controlled in any way (which, I assume, is the case).
In the current system, becoming a PKer means you'll either have to grind mobs while being on the run or die 1+ times and just do what you would've been doing either way to remove the XP debt. It doesn't take you out of the game and, for those people who enjoy living on the edge, it even gives more depth to the gameplay. Having a prison system would either not influence PKing at all, while just annoying people with meaningless non-gameplay tasks (if the prison time is short), or it would lead to potential removal of PKing for some people, while others do it w/o any punishment (depending on how jury is selected).
As I see it, a system-based arbitration of punishment is much better than potential abuse of the system.