Reno, there doesn't appear to be any heat damage to the conductor itself, only the screw. For all we know, this could have been from a previous installation.
I would say there are many connections out there with out anti oxidant that don't even have a discolored screw.
BTW, FWIW, I do use it when I work with aluminum but our preferences and work habits are not codes. The bottom line is, there is nothing as far as any NEC wording requiring it, so unless there is a local code, the inspector is wrong to hold up the final.
Roger
