Smartscreen does not tell you that WinMerge is malware. It correctly tells you that the freshly compiled build from GitHub is not a commonly used software which makes it more likely to be dangerous. How is that a bad feature to have?
How is that a good feature? Just because something is not commonly used it stops being good? When most software was proprietary and FLOSS was nascent, MS argued that FLOSS was bad, was that right?
Conversely, just because something is used more, does that get the automatic stamp of approval? More than 2 Billion people use Facebook every month, do you consider FB to be more likely to be good for someone? What kind of messed up logic is that?
No. Smartscreen is not meant to single-handedly solve the entire problem of malware. It is just meant to warn you when you are running software that isn't commonly used. It is nothing more than an attempt to provide the user with a useful heuristic. It does not make moral judgements about the software you use like you are saying here.
Only warning people when it isn't common used is a judgment. Why is software that isn't commonly used a danger? Where do you set the limit? Is infrequently used software signed by Microsoft dangerous?
Showing a warning about anything is not value neutral. Showing a popup for infrequently used software says that you value number of users as a measure of software quality.
It usually makes you have a quick rundown about what you are trying to run. If it's some software I got from the projects original GitHub page I make a note of that and proceed. If it's something that should surely not be "rarely used" (eg. A browser,video player,torrent client, etc) I think twice.
