This will work out. It will definitely be dryer, but also a bit thinner than normal, more like a hydromel with only 2.5lbs of honey to the gallon. 1 package (5g, not oz) of yeast is definitely fine in a gallon. Those packages are good for up to 5 gallons usually. Unless the must is very high gravity, then you will need to add more to a 5 gallon batch.
In general this will be a nice light mead and could be quite tasty.