I'm not quite sure I agree with you there BEagle.
Two VFR traffic should be (made) aware of each others position and sort their own positioning - that's fine.
But in the case you've described, that 737 must maintain IFR, and requires minimum separation from other traffic (be it IFR or VFR) to do so. So, you may need keeping out of his way, for his benefit - not yours. Mind you I do agree that there are better ways of doing it than orbitting very often, "height not above", "Do not turn North of", "Do not descend below", "do not turn base until instructed" are usually more elegant - and safer than an orbit within the circuit.
Having said that, it's the IFR traffic that needs to remain IFR, you don't need him to. So, it's much more appropriate for the controller to either ask him to become VFR, or to move him !
G