if Merlin knows a spell that can restore Lancelot's senses

I interpreted that as not restoring him, but as setting his spirit free, so he couldn't be used again - that he woke up seemed to be a welcome surprise. But I could be wrong :)

I'm not sure doing that earlier in the ep would have helped, because before the whole thing with Gwen went down Merlin and Gaius didn't know that's what Lancelot/Morgana was trying to do, and after, Arthur wouldn't care, because it's Gwen he's upset with. They'd need to prove she was enchanted to make it OK, and they think she genuinely felt/feels that way for Lancelot - because they all know she used to.