The 'entirety legitimizing' is so far an exaggeration due to Max Seddon's reporting; he has retracted the story's certainness; it is based on an inferior Russian parliament member's expressed opinion (named Kalashnikov, actually ...), and before any exact proposal has been made.
But concerning the various scenarios - the low-key annexation of just LPR/DPR as a relatively easy way out of the conflict, versus a bigger war - Putin's speech yesterday, delegitimizing Ukraine as a Western, evil colony, can be a basis for further invasions.
The West will begin with insignificant sanctions, hoping for the quieter outcome, and reserve sanction force for a bigger invasion. Unless of course, that the big invasion begins very quickly.