This is one of the parts that make me feel that Takahashi's planning and writing style in Gears/Saga doesn't lend itself to a game very well. We are spoon-fed cutscenes about characters like Cherenkov that go on for hours and hours, but never come back around to have any real significance. Usually in an RPG, you'd have the ability to go back to that character's home town or something, and learn more about them at will, throughout the game. Xenosaga is a linear story-driven style of game, but it allows itself to get bogged down in these RPG-style side stories. As a result, you've got a major proportion issue where Cherenkov is developed probably in more detail than Margulis, the actual villain.
It annoyed me that not only was Cherenkov a poor spy, but also that the characters around him were so oblivious to what was going on. It feels so dumbed down. Just in general, I don't like to feel as if all the main characters are stupid. Especially not when Cherenkov's story is so dark, and requires some maturity to fully grasp.
I find it really fascinating that he was genetically altered in some way as a punishment/cure for his crimes, but he still could not help but give into rage and commit murder again. It reads to me as that old message, the more you try to repress the ills of mankind, the more severe they get. Even with what we got through flashbacks, there's not enough information to figure out exactly what they are trying to say with Cherenkov. And it never intersects with the story, so it is never brought up again.
Like, in a way, I'd rather just have a story about Cherenkov than his story being injected into Xenosaga's already convoluted plot. Then I'd get to know all about him, and it really wouldn't have changed Xenosaga in any way.
If Cherenkov has a purpose plot-wise, I believe that heis meant to give us an example of a human becoming a Gnosis, to set up the idea of that for later on in the story. His backstory is just icing, demonstrating this cold and isolated future that could cause a number of people to make this transformation. Him being assaulted and beaten is another example of this. However, I think the point is undermined by how colorful and cheerful every single populated location is. The cutscenes say one thing, the game itself says another.
He suggests Shion could also end up this way, which would be awesome foreshadowing, except for it is later proven wrong, because the party possesses "shining wills."
So, it's moot. There was no danger of Shion ever becoming a Gnosis. This is replaced instead by her randomly-fainting U-DO disease, with no reference back to her experiencing the Gnosis dissolution effect (or whatever you'd call it).
Just one of those many things that probably made more sense in the first draft.