Yes, returning the Falkland islands would set a bad precedent, because it is not fair or practical to return each piece of land to the descendants of the people believed to have first owned them. There is no place to stop, with a plan like that. Would the Middle East and most of Europe revert to Rome and Italy? There is also no reason that the descendants of the people who were there first have any more claim to the land than the people who came later. The Falkland Islands should remain British.
If Argentina was able to annex the Falklands over the objections of its inhabitants, a terrible precedent would be set. Any country then that believes it has a historical claim or right to a territory could then seize it. Russia would then be justified to invade Belarus, Poland the western Ukraine, Germany the Czech Republic and western Poland, etc.