The ISI itself is a bit of an exaggeration. That springs from trying to do a lot (and often failing) with very little. ISI has other problems that are less visible. For example, inside Pakistan the ISI has some formidable competition that influences its overall decision making. Inside Pakistan ISI is rivaled by an almost equally powerful, but definitely more low-key, organization. This is the Pakistani Intelligence Bureau (IB). Pakistan essentially has three separate intelligence agencies: Military Intelligence (MI), Inter Service Intelligence (ISI), and the Intelligence Bureau (IB). Because the ISI is both a military organization, a spy agency, and one of the most powerful institutions in Pakistan, its activities and responsibilities have forever had murky overlap with both MI and IB, leading to confusion and rivalry over who is tasked with doing what in what areas. Military Intelligence is the least important of the Pakistani secret services, simply because it has the least amount of military and political power. Enough has been written about Inter Service Intelligence for most people familiar with the region to know that it is very influential, and very damaging, to the country's reputation and ability to defend itself.
The IB, however, is not only extremely powerful but also far more low-key. The ISI has responsibility for foreign espionage, paramilitary activities, and classification and organization of information. The Intelligence Bureau, however, concerns itself exclusively with domestic security, espionage, and internal spying. The IB as an organization actually predates Pakistan as a nation by a considerable amount of time. The Pakistani Intelligence Bureau, along with India's Intelligence Bureau (both countries have the same name for their domestic intelligence services) is a direct descendant of the British colonial secret service.
Most people tend to forget the importance of the legacy of British colonialism and its considerable contribution to Pakistan's problems, starting with the existence of the country itself. There is technically no historical or cultural basis for Pakistani nationalism, it is a part of British India made separate during the dying days of colonialism. What the Pakistanis and Indians did inherit from the British, for better or for worse, was an extremely well-developed and complex internal intelligence apparatus, previously known as the Intelligence Bureau of British India. In fact, the long-enduring power of the Inter Service Intelligence is a direct result of the Intelligence Bureau. During the first Indo-Pakistan War in October 1947, the Intelligence Bureau was tasked by the newly independent Republic of Pakistan with the responsibility for all intelligence gathering, both foreign and domestic. While the IB was extremely good at internal spying, its failure to effectively carry out foreign intelligence collection and analysis led to the creation of the ISI, with all of the subsequent problems the ISI has caused. The IB's failure at foreign intelligence was not necessarily (and surprisingly in this part of the world) a result of incompetence but simply the fact that the agency had never been set up to conduct foreign spying.
Currently, the Intelligence Bureau reports directly to the Chief Executive of Pakistan, be it the President or the Prime Minister. The IB monitors suspected terrorists, political activists and politicians, and, obviously, conducts surveillance against suspected foreign intelligence operatives. The IB spends a great deal of its manpower and budget attempting to prevent and counter known or suspected espionage against Pakistan by Indian intelligence services. The IB is attached to the Ministry of the Interior. Its budget and exact manpower levels are highly classified secrets. Despite its power reach inside Pakistani, the IB actually possesses no formal arrest power and, once it has identified a suspected spy or terrorist, it submits a request to the police to detain the individual or individuals.
Intelligence Bureau operatives are regarded as being pretty good at spying and counterintelligence. Unlike the ISI, which is regarded, at best, as a renegade service, the IB has always been content to loyally and quietly perform its duties in the shadows. In the current War on Terror, American intelligence and military personnel tend to regard it as more profitable to work with Intelligence Bureau agents than those of any other Pakistani secret service, especially ISI.