how come Torchwood is such a chickenshit outfit what with being a MIB style 'outside the government' operation?

Because this is Torchwood Cariff, a teeny little offshoot of the main event. Similarly to their having basement offices - Cardiff doesn't have a Canary Wharf, and Captain Jack's supposed to be a bit of an idiosyncratic rule-breaker, so maybe he doesn't want to toe the corporate line?