There was a problem with jailkit in ISPConfig 3.0.4, it has been fixed in ISPConfig 220.127.116.11. So most likely your problem will get solved by updating to the latest ispconfig version. The jail will only recreated when the first shell user of a website gets added, so you should try to create a new website and then a new shell user and try to login with that user to see if the problem is solved,
Did I make a security hole?
Most likely, yes.