Firstly, Sunny, many thanks for the sterling work you are doing in expanding the Nietzsche discussion and bringing the fruits of your wider reading to the forum - much appreciated.
As for Scruton's points, you could probably devote a thread to each of them, but I will try to be brief:
1. I think 'the residue of his own emotion' is a distortion and simplification of what N is suggesting, but we'll let that go. We'll also overlook the cheap 'none of N's judgements are fair' gibe (which, as sweeping statements go, is pretty sweeping!). Apart from that Scruton seems to be agreeing with N in principle: we are motivated not to seek some absolute truth (whatever that may be), but by some truth which is coloured by his own unconscious motives. There are two theses hiding behind this assertion, I think: a personal one (e.g. Kant invented the categorical imperative in order to justify a certain need for order and moral absolutism), and a general one (there is no such thing as absolute, objective truth). Now, these aren't the same. The first can be true even if the second isn't (i.e. we may be mistaken about truth, but it does exist). This is possibly what Scruton means when he says, 'N has a point' (though I don't know - I haven't read Scruton's book). However, N almost certainly means the latter: there is no absolute truth, and whilst a certain degree of objectivity is possible, it is always relative to our underlying need to see the world in a particular way. This is obviously a big topic, and needs a separate thread...

2. I'm not sure exactly what S is getting at here: is he claiming that N went mad as a result of his philosophical endeavours (looking into the abyss), and that this was a dangerous move that shouldn't be repeated by most of us? Firstly, N went mad due to a medical condition - whether this was syphilis related, or (my own view) a slow growing brain tumour, remains open to debate. However, most sober critics agree that there is no fundamental connection between N's collapse and his philosophical views (though, possibly, we might ask whether his mental and emotional exertions hasten the collapse - but this is pure conjecture). As for 'not going down this path', what are we to make of this statement? That we are to stop questioning at a certain point? That philosophy should only serve rationally defined ends? If S is saying this, then - frankly - this is rubbish, for what is philosophy (at its most fundamental) but the questioning of our deepest beliefs?
3. Again, 'a few disciples' is vague, and it is unclear who S is referring to. There have been a number of cases of deranged individuals misinterpreting N for their own purposes - and I'm not just speaking of Nazism (see for instance
the case of Leopold and Loeb). However, perhaps S has certain thinkers in mind - this isn't clear, but since N influenced (among others) Sartre and Heidegger, his philosophy really can't be said to be a dead end. S's other point, concerning religion, is fairer, and there is certainly a debate to be had about alternatives to N's view of man as isolated. However, it should also be noted that N was a great influence on a number of spiritual groups (e.g. Theosophy), despite his professed atheism, and some religious thinkers like to interpret N as being merely against the Christian church.
4. This, again, is a fair point, and one that could do with it's own thread. N generally does condemn pity, though it is a particular manifestation of it that he is concerned with, and he does have room for a certain sort of compassion which is born of spiritual strength. N's main worry was that pity would lead us to a weakening of character, whereby we all become fellow sufferers - thus leading either to pessimism, or requiring some unearthly recompense (e.g. we suffer so that we may live in Heaven). N's alternative was not necessarily heartlessness, but rather a self-overcoming of pain and suffering. From a psychological perspective, we might also point out that pity does not always benefit those in need, as it can be patronising and counter productive.