What you described did take place as Old English evolved, except it happened not just before front vowels but also sometimes after. However at some point late i

What you described did take place as Old English evolved, except it happened not just before front vowels but also sometimes after. However at some point late in Old English the palatalized allophones "broke off" and became phonemes in their own right, and most Old English texts are already at that stage, so it really was pronounced like modern "y" at that point, usually. What they got instead is "y" and "j" as allophones, which is partly why modern English pronunciations of most Biblical names are so weird.