I am sure that having to provide security for the Olympics was an enormous ball ache for a few folk, especially if leave etc was lost. That said, once the initial gurning was over, I'll warrant that the majority of military personnel enjoyed the experience. I completely agree that a £2.5M gesture is a bit weak and that double that might go some way to acknowledging the enormity of G4S's balls up. Paying individuals directly wouldn't work and would just be divisive. I hope the MoD use the money wisely and it isn't used to patch up a hole in their budget and isn't seen as a way to make a saving somewhere else. The Olympic contract was small beans to G4S and they can most definitely afford more than £2.5M.
As an aside, having attended a couple of Olympic venues (as a civvy!) I'd just like to say that the military personnel on duty were an outstanding advert for all that's good about the UK Forces. Polite, relaxed, helpful and humorous they were the perfect antidote to the G4S "security" mongs who spent their time getting off on fluorescent-jacketed power trips. I came to the conclusion that the G4S folk were, on the whole, working at the limit of their mental capacity just scanning bags and so generally couldn't interact like normal human beings (as we see day in day out at airports). The military folk on the other hand found the whole thing a breeze and were thus able to communicate in relaxed and friendly fashion with a smile on their faces.
A ballache yes but the military personnel involved did an outstanding job and did themselves and their Services proud.