'For if we continue to live in accordance with Judaism, we admit that we have not received grace.' (Magnesians, 8).
Ignatius is entirely correct. Judaism was not, is not, and cannot ever be a religion of grace. The law came from Moses, but grace and truth came through Jesus Christ. Before the time of Jesus Christ grace was essentially hidden from man, who was subject to a Law that demanded perfection but could not give it, who could only keep it in a "legalistic sense", in a sense deemed by God to be "rubbish" on account of the sin nature, in a sense that did not allow for the true cleansing of the conscience from sin, but rather perpetuated transgression and guilt.
And yes, the ST Jews were all given to works-righteousness, for this is the natural condition of man, to which there is no escape apart from the revelation of faith and of grace through the atonement of Jesus.