I think the reason I find a theocracy quite offensive is that it has a very special component that no other form of government has. There is no doubt in my mind that blind adherence to dogma of any kind (whether religious or not) that seeks to undermine rights and liberties is dangerous, as we have seen in non-religious dogmas like Nazism and Communism.
The reason a theocracy is different, though, is that special component called god. When you make that a central part of your governing principles, you have done two things:
1) Established that policies are based on revelation and not evidence
2) Established a very strong mechanism for cutting out dissent. When you say that all of your policies are based on what god has revealed to you, there is a special motivation for the citizens to agree to those policies. If they don't, they're risking being tortured eternally and being separated from god, who is, in their view, the most important thing in their lives. You combine this with a social structure that keeps the population under-educated and you've got a recipe for disaster.
An Imam holds a special power over the people for which there is no comparison in other forms of government.
Certainly I don't attribute all of the Iranian indecency to religion, but I would argue that it is one of the biggest, if not the biggest, factor in their approach to rights and liberties.