Odin, as one more insult, went back on his word and didn't give Loki his magic back, but Loki was not surprised.
On Earth, Loki finds a job in a stop-motion studio. After some time, Tony Stark starts funding the studio (i don't remember if he did so because he knew Loki was there or not). Either way, Pepper is a frequent guest at the studio, to check up on their work. She and Loki get to talking, and he eventually tells her what his sentence had been (Tony promises not to tell Thor where he was).
Loki and Pepper get closer, start dating and eventually marry. Their first child has Down Syndrome. Loki tells Pepper that if he had had such a child on Asgard, both of them would have been killed cause Asgard would believe that Loki birthed a not-perfect child to spite them. Had he'd birthed a girl, he would've been given back to Thor to try again). I think Pepper and Loki also had twins later on.
They got a house, and they were very happy in their lives. Then Thor came by, and pleaded with Loki to return to Asgard because 'their' son misses him. Thor said that the boy is very unhappy because he is not treated well by either Odin or the rest of Asgard (i think). Loki's reply to that is 'what did you expect, he came from me'. Loki refuses to go, and Pepper chases Thor away.
In the last part, Loki finds a silver hair and realises that Odin took away his immortality along with his magic, possibly as one more spit in the face. Except it turned out for the best, as Loki won't have to watch his entire family grow old and die around him.
Wow, that is specific. Does anyone recall a fic like that? Please? I'm fairly certain it was on lj somewhere, but where exactly escapes me.
FOUND: Under Calico Skies by ConeyCat