Why the evidence provided unsatisfactory in Act 2 scene 2 of The Valley of Fear?

Accoroding to Holmes:

“Well, Mr. Mac, it is very good and very clear so far as it goes. That is your end of the story. My end is that the crime was committed half an hour
earlier than reported; that Mrs. Douglas and Barker are both in a conspiracy to conceal something; that they aided the murderer’s escape—or at least that they reached the room before he escaped—and that they fabricated evidence of his escape through the window, whereas in all probability they had themselves let him go by lowering the bridge. That’s my reading of the first half.”

The Magistrate considers that arresting someine only account of a moustache is innapropriate so they must release everyone