If you are in support of free-speech, you don't have to engage in speech you despise in order to back the principle that it should be protected.
There is no municipality involved, there is no violation of free speech. It's not the government who is causing the censorship. It's a group that, one or another, is menacing your values. The only way to deal with these people is to not negotiate and show that scare tactics do not work.
"... because a municipality threatened death to anyone who attened the KKK convention."
Be careful with the analogies. Saint Godwin is watching... ;)
1. You can legitimately argue against the KKK as being a dangerous organization with a violent past. Although I'm glad that we have strong free-speech rights in this country that guarantee even their right to assemble, there's a world of difference between a KKK rally and some cartoons, even racist ones.
2. I'm not so sure that "everyone dress up as a Klan member day" would be so unreasonable, if some other group of crazies showed up and started killing people, crazies so crazy that they made the Klan seem sympathetic by comparison. It's hard to envision anyone that much crazier than the Klan, but that's because it's a bad analogy.
I wouldn't normally be in favor of racist cartoons, but if it's between racist cartoonists and nutbags who would actually kill someone over a cartoon, I'm with the cartoonists. Making race jokes is dumb but murdering people is orders of magnitude worse.
"Engag[ing] in speech you despise in order to back the principle that it should be protected" seems like a fairly decent strategy to me, insofar as it demonstrates the fruitlessness of trying to achieve censorship through terror and drives the murderers into more and more indefensible, outrageous positions. It's a dangerous tactic, but quite possibly an effective one. Mockery is a powerful isolating tool.