do a left/right check. meaning go to the left hand panel (under contacts) and see what faction he belongs to. then go right hand panel and make sure that faction is not the top listed one in the system, those are the ones who basically call the shots and to whom the system authority belongs to. alternatively, check trough your contracts and watch what faction is listed for the cops in your area. just because they wanted don't mean they are on bad standings. once they attack you (first) they are fair game. just ask Han Solo sometime how this whole shooting first thing works out.
and about illegal cargo's, that should be fairly self explanatory, there just MIGHT be a reason its called illegal. (not unlike if you'd stuff your pockets full of pot and walk into a high security building now, if a cop frisks you then you probably end up with a bad rep too
as far as its concerned, you can try low heat sig smuggling, if you HAVE to get it in that station (there are tutorial videos of that all around) try an outpost that has low security and won't scan you, or do speed smuggling, getting in there before they can finish their scan which too carries risks of a sudden, fast meeting with the station wall if your not the best pilot.
either way, personally i don't think the rep system is broken or needs rework. the info to avoid repercussion is there, just not necessary flashed in huge letters n your screen when you target someone. for me, it adds a little to the game that you have to look and check before you attack, tho i can't speak for everyone, some may like big flashy arrows that point to an enemy and say attack here
