I know about the Ustae. And there were other Nazi collaborators all over Europe. In France, it was the Milice. In Norway, Vidkun Quisling led the collaborators.
The wrongs of the WWII collaborators cannot be, in my opinion, for tyranny or terrorism by the former victims. I'll give you an example that may help you understand my point.
Israel remains extremely careful about how it fights its enemies. They try to use precision munitions; they try to adhere to the rules of proportionality. They try not to kill non-combatants. Yet, using the logic you site above for the Serbs, Israel would should be unhindered by any considerations. After all, the Arabs have treated the Jews in Israel very badly since even before the Zionists from outside Israel first set foot back in Israel. But the Israelis don't seek to dominate their neighbors. Other countries would never need to fear Israel unless they are supporting war on Israel. Israel doesn't randomly kill civilians. They don't set up concentration camps, like Srebrenica. Why not? Because at the end of the day they must not become like their enemies. Two wrongs do not make a right.
The Serbs probably felt that it was better to fight the Islamo-Nazis than pray they will not act like their grandparents.
The failing of the West was that it did not try and be tough on all sides - I don’t buy the argument the Serbs were more brutal than the Croats (who ethnic cleansed more Serbs than vice verse) or Muslims.