Irenaeus is obvious - he tells you what he believed (the cross being that "final" stage of human existence). It wasn't penal substitution...but I will let you read it yourself (read the entire chapter from which you lifted your quote).Perhaps you did. I haven't seen it though.
That Christ died on our behalf is unquestionably true, but what does it mean? Let's look at 1 Peter 2:24. 'He Himself bore our sins in His own body on the tree.....' Now for sure He bore our sins on our behalf, but do we still have to bear them? Yes or no? No! Therefore He bore them instead of us. It's not rocket science.
So what does it mean that, as Irenaeus says, 'The Lord redeemed us by His blood'? What does it mean that the redemption was 'His life for our life, His flesh for our flesh'? It means that He gave His life in exchange for our life; He died instead of us. He suffered in His flesh so that we should not suffer in ours. that is the meaning of 'redemption.' A price is paid in exchange for something. As for the rest of Irenaeus' explanation, you are still thinking 'either....or' when you should be thinking 'both....and.' Until you get that right you will never understand.
BTW, I found a very similar quote in Clement of Rome.'Because of the love He had towards us, Jesus Christ our Lord gave His blood for us by the will of God, His flesh for our flesh, His life for our life' (Epistle to the Corinthians, xlix). It looks as if Irenaeus was quoting him!
This thread is what I believe. So I will rephrase your question -
So what does it mean that 'The Lord redeemed us by His blood'? What does it mean that the redemption was 'His life for our life, His flesh for our flesh'?
It means that we were purchased with the precious blood of Christ. It means His flesh for our flesh, His life for our life.
It does not mean His life instead of our life, but as C.S. Lewis was eloquently pointing out, His death on our behalf. Jesus died FOR us - not instead of us.
Did you even notice you changed the words around?