While you're answering that, it seems my first argument was based on carelessly disregarding the context.
However, I haven't exhausted the quote. Here's the relevant part:
who can doubt that nonbaptized infants, having only original sin and no burden of personal sins, will suffer the lightest condemnation of all? I cannot define the amount and kind of their punishment, but I dare not say it were better for them never to have existed than to exist there.
Notice two things:
1) Augustine says the punishment has an amount and kind which he does not know. Consider now that the deprivation of the Beatific Vision is a specific kind of punishment and which has no qualifier of amount. Therefore, Augustine is not speaking of merely their being in Hell. To restate the argument: if Augustine was claiming infants are only deprived of Heaven he wouldn't have said he cannot say what amount and kind of punishment they would suffer.
2) Augustine says: I dare not say it were better for them never to have existed than to exist there. Well, if Augustine held that the infants were in a state of perfect natural happiness, not suffering any positive punishment, then he would certainly say it was good for them to be born. However, he is not sure whether their punishment is of such a degree as to be better not to even exist.