Keep in mind that all I know about w40k is from popcultural osmosis, random videos and this thread. I have a lot of popcultural osmosis to go around, but I have not read the bigger than some books wikipedia page about the Horus legacy or any of the rulebooks or anything. That said, I still feel confident enough to leave some comments. If there is proof that what I said below is dreadfully wrong, feel free to rub it in my face.
In not an 'Imperium Good' manner but an 'even Imperium not that stupid' manner, the whole phrase is "There is no such thing as innocence, only varying degrees of guilt."
The Inquisition (much like the Grey Order) are the type to suspect *everyone* of doing something wrong, but they're not completely divorced from the idea that someone's 'guilt' might be, even if measurable, small enough to not be worth punishing.
(There was also the 'A plea of innocence is guilty of wasting my time!' guy, but who knows what situation that was.)
To play devil's advocate, "There is no such thing as innocence, only varying degrees of guilt." is probably not a motto justifying the inquisitors killing everyone, but rather, killing anyone they want with no oversight or questioning, being for good or petty reason.
Note, I am not defending this morally, just saying it does have an underlying logic in an authoritarian regime. This is actually an authoritarian tactic, making little laws that sound logical but that everybody breaks or has to break by accident/just to get by, so that they can selectively enforce them whenever they want to get rid of enemies while seeming lawful and painting the enemy as a lawbreaker. The "worst regime known to man", based on this quote, seems to have perfected this process by not even needing a crime.
Of course, this still causes incredible dysfunction (duh) I just think this is a little more complicated than "inquisitors be killing everyone they see because they are omnicidal fanatics"
The tragedy of 40K is that that chance is long gone. Blame it on the Old Ones, on the Necrontyr, on the Eldar, on the Emperor, it doesn't matter. Everyone who could have done better failed, and all that's left is the broken shadows of their legacies, fighting for reasons they don't understand and can't let go of. There might be sparks of hope, but everyone who's looking for them can't distinguish them from the false hopes left behind. That's why the Inquisition sucks so much, because it doesn't understand as a whole what the real problem is, it's too large.
You probably know W40k much more than me, but honestly, given how dysfunctional authoritarian regimes are (a thing that, notably, even I know was carried over to W40k, making it much, much more dysfunctional than any real regime ever was), I can't help but think that they could still combat all the horrors of the universe, if only they changed the way they function. Sure, that is easier said than done, but my point is, I think the problem they actually have is not some invisible enemy or lack of great men that could change things, but internal corruption, bigotry, fanaticism and stupidity inherent in authoritarianism preventing them from best utilising their resources.
How many potential Emperor tier characters have been killed before achieving the fullness of their power because they were psykers (potentially to keep the useless husk that is the current Emperor alive)? How many Ciaphas Cains has the Imperium killed because they didn't have his reputation, so their tactical acumen was thought of as cowardice? How many scientists could have recreated the weapons of old, or even ascend humanity to the old ones tier, if there wasn't an ignorant cult having a monopoly of science?
I think the tragedy is that, for all the external problems, the worst enemy of the Imperium of man is actually not chaos, or the orcs, or the tyranids,or the Necrons, but rather, the Imperium of man.
Fantasy works much better because, for all its moral failings, standard feudalism is, genuinely, a more effective way of doing things than authoritarianism. There is a reason feudal regimes were stable, while authoritarian regimes tend to self cannibalize until they fall.