I get that the Grey Knights are the Militant arm of the Ordo Malaus, while the Deathwatch are the Militant arm of the Ordo Xenos and that the Grey Knights don't send marines to the Deathwatch. Let me refine my question a bit. Are their rule/balance issues with the Grey Knights or are everyone's issues with them thematic/fluff related?

As far as rules go, I can't say for sure. Deathwatch characters get squad and solo mode abilities, and their advancement tables work differently. Plus there is the matter of demeanor, and psychic powers. I haven't looked up the grey Knights book in some time, so I cant say if they get stuff to help balance that put or if you'd have to make something up.

The Grey Knights don't get squad or solo mode abilities, but they do get to cooperate with one another and join their psychic abilities together.Also, they don't get Armor Histories and Quirks, they get the Aegis stuff in their armor boosting their defenses against psychic attacks. As far as mindwiping Astartes who encounter daemons ... there's no support for that being standard practice anywhere. All Astartes are expected to know how to fight all the enemies of Mankind, including Chaos, which means daemons. And deliberately getting rid of combat experience is usually a bad idea.I'll concede that sometimes selective mindwiping is probably done, but it would not be standard practice and would be reserved for extreme situations.

Well this is going to rapidly become a discussion about what one considers canon or not but suffice to say Slaves to Darkness and the novel space marine are both pretty clear on the mindscrubbing part for marines.