So when did the Police become psychic?
I dislike the wording but cannot say it is wide of the mark. If they suspect you have a drug on you that might be a controlled substance then what do you expect them to do, exactly?
The police have access to basic drugs testing kit (Marquis reagent if memory serves?), but it would be worth knowing whether it is accurate enough to distinguish between mephedrone and ecstacy. I suspect not.
According to a number of comments here, the story should go as follows; PC 1234 Bobbins stops the local dealer, points to the bag of Bad Drugs(TM) in his hand and asks "What's all that then?". Dealer tells him, "It's mephadrone, innit." Having read the comments section on The Register, PC Bobbins decides the dealer must be legit and above-board, and decides to back off before he brings the walls of democracy crashing down about his highly polished, liberal-grinding, hippy-stomping jackboots.
(i) the police officer has no way of distinguishing between drugs on the street beyond visual consistency and experience unless they have one of the drugs testing kits, and even then it may still give a 'false positive' (though I would guess it's actually a 'positive positive' in this case, as the drug appears to be in the family that the kits test for).
(ii) even if they can correctly identify it, there is still the small matter of it being illegal to sell for medicinal purposes. They may wish to investigate that and I do not think that constitutes bad policing or crushing of civil liberties.
At this point, though, I agree that things go wrong. If you are cleared and released then there should be no need for the matter to affect you again. Notes kept by the Police for their own intelligence are one thing, but for the purposes of the outside world, the event should never have taken place - no comments appearing in the CRB, offence to try and compel people to answer, etc.
Paris, because she appears to be familiar with all manners of investigatory techniques.