Gallopingguitarist, my take on the filly is that you took the right approach. She's not trained that way, that's just her personality. Although training can help that, a personality isn't going to change. The goal is to teach horses like that that it's not okay to react to discomfort by biting or kicking/ in a dangerous manner, and that they need to behave themselves, but without antagonizing them. So, I think you took the right approach- sometimes, less is more, and being left alone/ keeping contact to the minimum is the biggest reward a horse can have. If you had used increased grooming/ contact/ etc. as a result of her shunning it, I'd bet she would just get worse. Although I do think that the grooming her a bit more every day is a good idea, as it would teach her that one, having a nasty personality is not going to get her what she wants, and two, she needs to act decently while with people/ humans mean business. You want to respect her, but without letting her be a dictator.
As for the original question of work as punishment... In regards to the specific situation of biting and making the horse do circles as punishment, I think that has a lot to do with the horse and their personality/ how excitable they are. Overall, though, I don't find that this specific method gives very good results... I personally don't like that approach in general, as a lot of the time, that kind of aggravated and longer-lasting response just serves to aggravate the horse without actually teaching them anything. One of my horses is a sensitive snowflake, who, when facing this kind of thing, gets so caught up in "ohmygoshohmygoshcirclescirclescircles" that he forgets about the whole "I shouldn't bite" thing. Basically, if I up the energy, so does he, so making him go in circles is not the answer. A firm no, an aggressive movement, a whack with the lead rope, then maybe making him back up a few steps, as long as it's quick, firm, and done calmly, he gets it. If my reaction is prompt and lasts within a few seconds, then back to normal after that, I get the best results with him and pretty much all the other horses I've dealt with so far.
Overall, work isn't necessarily being used as a punishment. It's not the work itself, its the discomfort. It's like swimming v. swimmimg properly- when you synchronize your arms, legs, and breathing, it's still work, but it's so much more enjoyable than swimming incorrectly, which is uncomfortable, if that comparison makes sense.