Alright, I've swapped out most of the things I had above. I've worked him out so he fits the Plot better, and I hope I've addressed the issues you've had with him. Here we go:
No movement without him knowing- with the changes I've made to the shades, he isn't omnipotent. He can only see what his shade sees.
Nobody knows where he is- I've moved him into an abandoned subway tunnel. To be more specific, he's been locked in a maintenance room. At the very least, blueprints would show where such a tunnel would be. He can't break out, since he can't move anything and he isn't particularly powerful physically, but anybody with an interest could break in easily. He might do something rash like, say, try to attack a super, get his ass handed to him, and that super would find out where he is.
He can't be hurt- I've fleshed out (get it?) the shades more. They're much more physically based than before, and they can be killed pretty easily. They have to move from place to place, so they can't just appear, but they also can't be trapped. They start out pretty weak after Kage creates them, but they grow stronger fairly quickly. Even at fully grown, they wouldn't be able to take anybody in a fist fight.
I added something else as well, not sure how well this'll go, but here it is.
Kage was present at the spill, and gained his less evil abilities, being able to insert himself into people's dreams, and being able to create illusions. The thing that gives him his other powers, such as the shades, is a darker thing, a sort of parasite. Think venom from spiderman. This thing is what allows him to create shades, as well as the evil part of his character. Explaining exactly what it does would take a while, so I'll summarize. It basically latches onto someone, and takes control of them. Kage is in control of his body, but this thing is what controls his powers. Anybody who busts the door down could force it out of him (if they were good guys), or else nab it (and optionally him) to do whatever they want with. The good guys gain an ally, the bad guys (whichever one finds him) gain an augment to one of their powers. Assuming he escapes with the parasite still in him, he could either join the baddies or operate solo.
That work? Now people have an incentive to find him, and once he gets freed he loses the shades. he's not an insurmountable enemy anymore, and wants to get out. Tell me if I need to change more, but to summarize:
Catacombs are gone
Trapped in subway maintenance room
shades are easy to kill
Loses shades when found, as well as evil alignment
Essentially, while he's trapped in the subway, the shade IS Kage, and character interactions with the shade also affect Kage.
Tell me if I need to make further changes.