Okay, let me just try to interpret his resurrection skill here.

He has to summon that statue with the big mouth to use it; we have seen him do this before to ressurect the other Pains. He ressurected his other bodies that Jiraiya killed. This also means he can ressurect anyone, not just someone he killed. The statue seems to have some sort of radius that probably depends on how much chakra Nagato uses. A whole village seemed a little much for him.

The statue also seems to have some healing abilities. The three that Jiraiya stabbed did not have wounds on them after being ressurected. So it would appear that Nagato's skill probably is a bit like Tsunade's, using his chakra to heal the person ressurected as well. I would bet the way it works is a lot different than Tsunade's technique, however. This means that Nagato used his remaining chakra to revive and heal the entire village.

There seem to be some limitations besides just the distance. I doubt he could heal a severed head or torsoe. Something Orochimaru could do, but he wasn't human anymore. As far as Jiraiya, his body is at the bottom of the lake and has probably been eaten by the fishies. We can probably safely assume that Nagato can only ressurect recently dead bodies that just need their spirit back plus some healing.

I don't think Jiraiya would have ever left Nagato if he knew Nagato could bring back the dead. So we can also safely assume Nagato would have saved Yahiko, his parents, or anyone else for that matter if he knew how to use the ressurection technique at the time.

As far as what happend: it sucks. It totally cheapens the deaths. You almost feel robbed. However, I'm about 48% pissed off to 52% happy that Kakashi is alive. The ressurection technique may have killed what would have been the most bad ass arc ever, but the Kakashi revival saved the series (is that the word we use?). Who knows, Kishimoto might not have meant to ressurect everyone, but received some threatening phone calls after killing Kakashi off, originally.

On a side note: Nagato's ability to just ressurect and heal people seems like it would be the perfect technique to have if you were, per chance, striving for world peace.