It isn’t really an Active versus Inactive problem, it is a permission set problem.  If the conflict shows within a given permission set, it doesn’t really matter whether it is assigned to an Active or an Inactive user, what matters is the conflict is there.  If you however have permissions that are no longer used by any Active user showing a conflict, I would suggest removing the permission set altogether from those users.

That being said, after running the report, you can RMB and tick on to Show Active Users Only.  You can also create additional filters from the RMB.

ShawnBerk - thanks for the feedback.  I have found the filter you show for the matrix view.  I am trying to take the inactive users from showing up in the PDF report that we send to management.  Ay ideas on that one?

Oh, I see what you are meaning, you did say report, but I was thinking on screen - sorry for not paying attention to context.  Try this method for the report output:

1. On the Report Parameters under User, instead of entering % for all, select the ellipse to go to the Search dialog.  Select Search. 
2. Go to the SQL tab.
3. Enter this SQL:  IDENTITY in (SELECT identity from &AO.fnd_user WHERE Active = 'TRUE')  nwhere you need to substitute &AO for your instance]
4. This will filter the users to just the active ones on the select list.  Highlight the first one, then scroll down to the last and select to highlight the entire list.  Then OK.
5. This will put the entire user list in User field already concatenated.  (limit here is about 1050 entries give or take the length of the user ID)
6. Enter the Functional Area and Conflict Type parameters as normal

For us, when a user leaves or is inactive, we prefix their Last Name with LEFT or INACTIVE and can also use that as a filter, but the above method is universal.

Thank you Shawn!