Your point about commandments in the mind is so key.
Being heterosexual is just part of who I am. I don't THINK about it, nor do I ACT on it in every waking minute, an impossibility. I believe this is true of homosexuals, too.
ALL HAVE SINNED AND FALLEN SHORT OF THE GLORY OF GOD. But, all can be redeemed.
I agree. I also tend to dislike analyses that made God look bad. Of course God can distinguish between my own internal passing coveting of a married woman I may encounter (that's just a normal, natural reaction). I don't linger on it, nor do I lust over it. Nor do I act on it.
The idea that God can't tell the difference makes God look dumb. God isn't dumb. As you say, we are all with sin (that is, 'missing the mark').