That seems like a bad move, if true. If I have to take a layover, I'll often do a connecting airport where I can wait in the lounge if the price/schedule is close enough. I've flown WN through PHX/DEN where I have lounge options but at the same time have opted for other airlines when the only decent connection on WN is through MDW.

It shouldn't have to be any sort of partnership or direct affiliation with Southwest if WN doesn't want to deal with it - they just have to say "go nuts" to a 3rd party operator and potentially take a cut of the rent (depending how the terminal leases are set up).