We must understand Vaheguru jee's nature, so that we may please Him and get emancipated.
Heavens and Hells, Jannat and Dozhakh, Swarag and Narak etc. are all part of Vaheguru jee's great show. Above these realms there are places like Baikunth, Sunn Avastha, and above all is Sachkhand.
It's true that Vaheguru jee's compassion knows no bounds and it is His compassion alone that sets us free. It is Vaheguru jee's compassion that He enables us to meet His Guru form and this way realize that we are prisoners in this world. It is Guru Sahib who gives the wisdom to the Jeev to give up anti-Gurmat ways and adopt Gurmat. Unless one adopts Gurmat, one cannot chant the True Naam. This is why, before one is given Naam by Punj Pyare, one has to adopt Rehit i.e. one wears the Kakaars and agree to keep Rehit. Then one gets Amrit to purify the utensil that would get Naam and finally Naam is given.
There is one thing to ponder upon. Even though Naam is all powerful, a transgression in Rehit can affect one's Naam Abhyaas. If one does a Bajjar Kurehit and continues to chant Naam, one would not get emancipated because one needs to get pardoned for the Bajjar Kurehit before Naam can free one. Same way, not getting up at Amritvela, not wearing Kakaars, not leading an honest life and obeying other Hukams of Guru Sahib can affect ones Naam Abhyaas. If one is unable to chant Naam to its full potential, then how would one get emancipated. So obeying Hukams of Satguru jee are all part of chanting Naam. Naam and obeying Hukams including Rehit all go hand-in-hand.
Vaheguru jee's compassion is at one place but the hells too are full of poor Jeevs like us who get punished for their mistakes. Bhai Sahib's book Andithi Duniya gives details of Jammdoots, and Hells that one has to endure if one does not adopt ways of Gurmat. As SK jee pointed out, perhaps going through suffering too is part of Vaheguru jee's compassionate nature.
We don't know anything but what we do know is that if we obey Guru Sahib, if we stay humble in Sangat and Chant Naam earnestly, then the compassionate nature of Vaheguru kicks in and emancipates us without looking at our merits and demerits. But unless we regret our previous sins and unless we meet and obey the True Guru, our merits and demerits do affect our condition.
May Guru Sahib deliver us through His compassionate nature.
Guru Sahib knows better.