I agree with what Laize said, you're basically putting a mark on them that says "Watch out for these people!" Additionally, the stigma of being watched because "You're mentally ill so we can't trust you", that's all bad. Criminally insane =/= mentally ill, and that's a distinction that could, nay, will get lost in the shuffle in a government watch list or whatever you want to call it.
Also, some things like Asperger's are classified as mental illnesses in some cases for medical purposes only (like insurance coverage), when they aren't "mental illnesses" at all, in the true meaning of mental illness.