Joseph – you are asking a good question. As I already pointed out, there is a reason that you are assuming that even those people who are advocating that someone can be considered a tzaddik even if he does an aveira would differentiate when it comes to a serial killer. The question is, “Why?”
I think it can be explained as follows: We are supposed to (and it is logical to) judge others favorably. Even if someone seems like a really bad person, you have NO clue what his level of bechira is (see Michtav M’Eliyahu for an explanation of bechira levels). You have no idea what his upbringing was, what all his experiences in life were, and what his inborn nature is. Even though he seems like a really bad person, perhaps for someone from his background and personality, etc, he is really a tzaddik.
Maybe the person who is continually insulting you has poor social skills and has no idea that what she is saying is offensive. Or maybe she really wants to insult you 10 times a day and she is a tzadeikis for holding back and only insulting you once a day.
Maybe the guy who is Mechalel Shabbos was not brought up Frum and was never taught about Yiddishkeit so he has no reason to believe there is any more truth to it than other religion. Maybe the guy who grew up Frum but stopped keeping Shabbos has emotional problems that you can’t even imagine and he is a Tzaddik for not giving into his Yetzer Hara and holding back from committing suicide every day even though every day of life is torture for him. Or maybe you saw him smoking of Shabbos but you don’t realize how hard he had to struggle not to smoke for the first four hours of Shabbos.
I read a story about a kid-at-risk who approached his mentor/Rebbe distraught. He said, “I was trying so hard not to smoke on Shabbos! I held out for one hour, for another hour, for a third hour, and for a fourth hour. But then I gave into my Yetzer Hara and smoked.”
The mentor said to him, “I’ll tell you what. I’ll make a deal with you. I’ll take the Gehenom you are supposed to get for smoking on Shabbos…
As long as you also let me have the Gan Eden you are supposed to receive for not smoking for those first four hours.”
(I realize I didn’t answer the question yet, but this post is long enough.. to be continued..)