Lex was feeling good after showing off in front of the kids, but he did not let his success or growth get to his head. The Dark Knight was not nearly as weak as Lex made it appear to be. The fact that his strength had been rising evenly to match Z meant that either he was holding back, or he was growing rapidly. The fact that he could continuously come back to life also played in his favor a great deal.
Logically, it made more sense to seal and imprison him than kill him, but Lex had not been lying when he said he wanted to study the dark knight. Before killing him, Lex had left a mark in his spirit and hoped to follow it to see what happened to it. While it worked initially, and Lex was able to track his spirit as it evaporated, the experiment quickly came to an end as something cleansed his existence by marinating it in with the avarice of Abaddon.
