The Ustashi leader (Pavelic) was a terrorist living in exile--the Germans used him because the leader of the main Croatian political party, the Peasant Party, refused to collaborate. It's as if an outside power had made Timothy McVeigh President of the US.
The current government of Croatia has no links to the wartime puppet government--it is legally the successor to the Communist regime that ruled Croatia as one of the republics in Yugoslavia from 1945 to 1991.
1. No group funded by either Hitler or Stalin can claim to be clean; it's merely a question of the degree of evil, at an individual level.
2. Do the Krajina Serbs actually expect reparations from Croatia at this point?