The Nuclear threat is the only leverage North Korea has on getting "free goodies" from the world (actually, the threat of bombing Seoul is another leverage they have. But if they ever crossed that line, they would lose any advantage they ever had). Now, I doubt that the North Korean leadership gives a crap about the suffering of their people, unless it is the leadership doing the suffering (the pains of the privilege) but I doubt a famine riot is the last thing they need during the period of Kim Jong-un's transition of power. I am going to assume that the North Korea attack was not just an attempt to scare the rest of the world, but to remind President Lee Myung-bak that North Korea should not be taken lightly. After all, President Lee Myung-bak's stance on North Korea has been less than acceptable for Kim Jong-il's taste. I believe the fact that President Lee gave North Korea the cold shoulder, prior to the attack, regarding the issues of negotiation, only made the North Korean regime feel the need to be more belligerent so they could be taken seriously. Another way to see it, this was a great opportunity for Kim Jong-un to impress the North Korean regime by trying to bully and embarrass President Lee.
After this attack, I doubt there will ever be talks of reviving the Sunshine Policy, to do so would only embolden and encourage the North Korean regime to continue their reckless behavior. How will South Korea and the rest of world deal with North Korea it is still to be seen, but by returning to the old ways of dealing with North Korea it would only encourage the regime to never change, to continue their reckless behavior and expect rewards for it (or tributes if you will), and at worst it will secure that Kim Jong-il's dynasty will survive for the next generation (and with that it will die the dream of a unified Korea, for now).
It doesnt look like China is even interested on dealing with a possible Nuclear North Korea (they dont see it as a threat at the moment, or maybe they dont feel like dealing with Kim Jong-il's tantrums), but they do have a problem with the childish behavior that could escalate into a war. While a war in the peninsula would be bad for everyone, China would rather have a divided Korea than an unified one. It seems that North Korea serves as a buffer zone to keep South Korea (and America) from their borders. Also, if the North Korea regime were ever to become unstable they are worried that the chaos of a collapse regime could spill into China's borders. For now it is on China's interest to stop any threats of a war in the peninsula, so it is advising the North and the South to make up and to renew their negotiations for peace (they dont care how is done as long it is done). A divided Korea is good business for China as long it doesnt become disruptive to China's interests. Without China's help to restrain North Korea from reckless behavior or stop them from their pursue of Nuclear armament, it seems like appeasement is the only option at the moment. But North Korea should not underestimate South Korea, while President Lee Myung-bak's aggressive declaration seems like just big talk, he strikes me as someone who doesnt like to be pushed around. I dont think President Lee will allow the situation to escalate, but I do not think he will allow Kim Jong-il to have the last word.