Like it is not surprising that "you got godstuff on you and now you glow funny, we should lock you up while we figure out what's going on" polls well in Rahadoum, since the people in the diegesis are not privy to the game mechanics.
I think in a lot of countries on Golarion if your neighbor started glowing after a god died, you would be very concerned about that. The difference between one place and another is that the State might not be equipped to intervene in "mysterious glowing neighbors" in most places, but in Rahadoum it is.
But this is a clear case of "you haven't done a crime or anything, we just want to understand what's happening and make sure you're not contagious."
And as to why there isn't another atheist country with a better representation....my honest response is because it doesn't seem likely unless it's institutionally enforced. Any country that has religious freedom is probably not going to be majority atheist (especially in Golarion). And even if you had a city where that happened to be the case, it's unlikely to the defining feature.
Rahadoum is an anti-theocratic (if that's even a thing) country, but it's basically still just a theocratic country if you consider how theocratic countries behave and equate the Laws of Mortality as a "religious belief".
You're fixated on the idea that Rahadoum is atheist/anti-theist/misotheist. We're fixated on the fact that they persecute people (sometimes for things that happen to them beyond their control, see Godsrain consequences) and don't have freedom of religion.
The fact that all nations are run by institutions is precisely why Rahadoum pings so hard on my yikes meter.
It is entirely arbitrary / writers choice that Rahadoum became anti-theist, and it is by writer's choice that they are colored as "bad" because of this choice. You can claim that Rahadoum's bad because they persecute people, but in fact this is not how it's presented. The (very real) injustices of Rahadoum are presented as extensions of this anti-god stance. There's not a corrupt tax system that hurts some subset of citizens, no hurtful conscription, etc. Not even a people-pleasing corrupt demagogue with political power.
It's entirely written so that Rahadoum's "badness" is because of their rejection of the gods. This is the only way writers can say some belief or idea is "bad;" they write various harms to be as directly resultant of the idea as possible.
Rahadoum is as "anti-theism is bad" of a writer thesis as it gets.
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Despite the yikes & hypocritical writing, it's an unrelated face-palm that the thesis rings incredibly hollow.
All institutions cause harm, and it's naive to pretend that the religious orders are clean. In order to say "Rahadoum is bad because they harm the innocent Oracles" that harm must be greater than the other institutions that don't get the same "bad" label. (hence, hypocritical)
This is why Rahadoum's backstory matters. How many innocent Alahazras would it take to reach the level of harm caused by the oath wars? Nations do not get to just blip from war-devastation into a perfectly morally just society, even if Paizo is pretending they can with all the slavery poofing. It sucks to deal with relativism, but it is reality.
It is incredibly wrong to execute people for spontaneously manifesting diving magic, but that still exists within a wider context, where red mantis assassins are apparently still attacking them for being kicked out of the country.
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You cannot ignore that Rahadoum is presented as bad *because of* their "irrational anti-divine" institution, to a comical degree. I cannot find a single wiki-visible (non-slavery) harm this nation is supposed to do / have done that's not in the name of keeping the gods out.
Yet there is plenty wiki-visible info that informs that Rahadoum is under constant subversion / attack from religions and their agents.
It already stretches belief that "Foreign faith practitioners are welcome in Rahadoum, however, as long as they do not proselytize or perform religious rituals" yet children manifesting divine magic are considered as good as dead via the Pure Legion.
Another quick quote while I'm here on the Pure Legion: "Since the Godsrain, a radical faction of the Pure Legion focused on eradicating the newly created "rainblessed" has emerged, calling themselves the "Restoration Regiment"."
So no, it's not the law of the land that Godsrain splashed people are to be killed.