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So the law enforcement guys admit that they intentionally gave the appearance of NOT being law enforcement. And then they arrested a man for believing that they weren't law enforcement, which had been their exact intention. Am I missing something here? Does the government really think they can get a conviction in this case for anything?

It's a setup and betrayal - Sheriff Joe has thrown in with the drug runners and illegals. He's having his troops dress and act like the enemy in order to provoke the civilian militia into responding, and then reveal that they are cops and arrest the militia.

Sabotage. Betrayal of law abiding Americans. It's a sting operation to help the illegals, because now the militia doesn't know if the illegals are cops setting them up.