The reason Auto ISO gets fixed when used with a flash is because it has to.
If you are using the flash with a manual setting, then you have to know the ISO beforehand, or you don't know how to set the flash.
If you are using E-TTL II, then you run into the conflict that you get a measurement for ambient light first, giving a certain combination you can see in the viewfinder. Aperture, time and ISO, it's all there. Then you press the trigger button and the camera finds out that the ISO chosen doesn't work with the flash. It's either too high or too low. Thus the ISO has to be changed, but there's no time to tell the user that the camera has changed one of the conditions used to determine the proper time and aperture for the ambient light.
Thus Canon has chosen to give you fixed value for ISO, in case (to be brutally correct) you are stupid enough to use Auto ISO with flash. They give you ISO 400 for all cases except if you set the camera to P mode, thus probably indicating you want as much automation as possible. In that case you get ISO 400 with the flash aimed directly at the subject, but ISO 1600 if bouncing the flash.
Anyway, I can't see how auto ISO would have solved the issue you outlined above.
You have 1/125 s, f/5.6 and ISO 100, but you want to use f/2. Thus you have to go to 1/1000 s, which in turn requires high speed flash sync.
I fail to see how auto ISO would have solved that problem for you? Aren't you looking for the auto ISO function to solve an issue it can't, even if one would disregard the problems with auto ISO with flash I outlined above?