Nothing inherently wrong with a no-frills carrier benefitting from Route Development Fund money - Ryanair's in receipt of Scottish RDF funding for some of its PIK routes, and easyJet gets NI RDF funding for some of its BFS routes. The idea with the RDF funding is that the route should be able to stand on its own feet (i.e. be commercially sustainable) within say 3 years anyway.
As for PSOs - well, a bit of low-fares marketing could potentially build the traffic on a PSO route sufficiently (on Dublin-Kerry, for example, I believe it could be possible) to either put the route above the threshold for PSO eligibility next time the contract comes up, or else (if there's not that much growth) at least get the airline's cost base down to a level which would give it a head start in bidding low for the PSO next time round. So as long as the airline doesn't see PSO operation as a permanent life-support measure, I think it is possible to reconcile that with being a no-frills carrier.