The Conspiracy bugs and the Founders were outside infiltrators and their actions can't be attributed to Starfleet as a whole.
Yes, but the point was that the Federation executive branch probably never publically admitted to being infiltrated from said outside forces, either to keep its citizenry from panicking, or to keep its enemies from perceiving it as week - or both. At least, not that has been ever seen on-screen. The books might have some additional information on this front.
Also, do you seriously think that Starfleet is as ruthless as the Borg, or the Dominion, or the Cardassians, or the Klingons?
Certain aspects of it, yes (although I don't think including the Borg there is quite fair in this context - their motivations and goals are a bit different than the other non-assimilated races of the galaxy) - and inwardly, not so obvious on the outside. When you think about it, that makes it much more insidious. At least the other powers who have such organizations are up-front with their existence. Section 31 is the ex-felon uncle in the Federation family that nobody wants to talk about. How many Fed citizens really know of its existence and, more importantly, what it does in the name of preservation of their way of life?
Odo summed it up nicely when he pointed out that the Cardassians had the Obsidian Order and the Romulans had the Tal'Shiar - it made sense that any great power would have such an organization. Whether it's right or wrong is an entirely different debate and up to individual interpretation.