I think Sawyer let Karl go for two reasons.

1)Taking Karl back with them would only help Kate and the others know where to go looking for Jack and the others. Selfishly he does not want her to be so consumed with Jack because he is jealous. But, he also feels it is a dangerous pursuit and could put them all in danger. He would rather just live on the beach without confrontation with the others if possible.

2) He did have empathy for Karls heartbreak and need to be with his one true love. There has not been a woman in Sawyers life that he would be willing to sacrafice his life for until he met Kate. Now he understands that concept.