I agree with most of what you said and, as one whose business hosts websites, I'd probably do the same as Rackspace.

However, the "business relationship is a two way street" theory has some caveats. While many of us are familiar with the "We reserve the right to refuse service to anyone" signs in brick and mortar stores, it's not always that simple.

Take the wedding photographer who was sued (and lost) for refusing to photograph a same-sex wedding: http://www.cbn.com/CBNnews/357084.aspx

Obiviously, these examples aren't entirely analogous, but given the litigious nature of American society, any time you refuse/halt service to a customer, it has to be considered. I could easily see this Quran-burning pastor suing on the grounds that he was discriminated against.