It's totally up to you. Are you forgiving or vindictive, a patsy or a hardliner?
Nancy wins regardless of your choice in this case. The only difference is that if you recommend understanding, you'll hear how the culprit was taken back into society; if you recommend jail, you'll hear more about how the culprit was involved in the crashing of the ship.
I tend to be lenient because that's the kind of bleeding heart I am. But in the real world, I'd be surprised if the authorities were that easy; the culprit tried to kill Nancy at least three times in this game, and that's not a community-service kind of situation.