Placing "Inquisition" back to back with "In the Pale Moonlight" was an inspired bit of plotting by the show's producers. First, we learn that the saintly Starfleet is willing to get its hands dirty - then, that our protagonists may be willing to do this too!
This episode mixes in a bunch of different threads from Star Trek history. The basic concept is reminiscent of "Future Imperfect" and "Frame of Mind" - an alternate reality, in the latter case designed in order to "break" an individual. Parts 2 of "The Search" and "Chain of Command" also anticipate some of the ideas.
William Sadler is just the perfect antagonist here - I love the shots in which he is introduced, with diabolical shadows under his eyes. Relentless, merciless - the term "Inquisition" is used with intentional reference to the old Spanish sort.
Bashir is the perfect counterpoint, naive and principled. Toward the end he begins to lose his sanity, much like Riker in "Frame of Mind".
I didn't find the twist of Sloane offering Bashir the opportunity to work in Section 31 to be particularly convincing or necessary - but the open-ended conclusion does do a great job of opening a wonderful can of moral worms.