Absolute bullshit. Free speech isn't meant as a defense of reasonable, well-mannered expression, because such speech needs no protection. It's meant to defend the kinds of expressions that people would actually want to censor.

Let's be clear here. Stalking, harassment, and invasion of privacy--those all may or may not be legitimate things WBC can be rightly accused of. If the WBC is in the wrong, they're in the wrong for disrupting people's funerals by shouting at the top of their lungs, not for the specific things they happen to say in the process. "Hate speech" is a bullshit political euphemism, and the right to march down the street or stand on a street corner to share your views is the essence of free speech. It doesn't matter whether you're the WBC, the Ku Klux Klan, or Lyndon LaRouche.

Who decides the difference?

EDIT: It should also be noted that in the United States (where Phelps is based), restrictions on "hate speech" have not fared well in the courts, as they are usually seen as an unconstitutional restriction on free speech.

http://en.wikipedia.org/wiki/Hate_speech#United_States

Looks like the Supreme Court is due to rule on a case involving Phelps that may settle some of these questions from a legal perspective:

http://www.scotusblog.com/case-files/cases/snyder-v-phelps/

What's always concerned me is that I don't know how to draw that line. Where do you put it?

Is there a difference between the two? What's the distinction? Who gets to decide? Does the distinction change over time?