Just finished emailing my mom about this, so I'll just copy and paste my thoughts. I'm on the fence about this one. As a constitutional principle, it's as sound as can be: one absolutely cannot retreat from free speech based on the odiousness of the speech in question. But on the other hand, there's a highly artificial distinction at play here, and the Supreme Court tiptoes right around it by saying that "[t]he speech was indeed planned to coincide with Matthew Snyder’s funeral, but did not itself disrupt that funeral." Frankly, I can't imagine anything much more disruptive than a protest, even if it was silent and 1,000 yards away. The idea that the funeral was not disrupted because the only thing funeral goers were subjected to was speech is not realistic. But we cherish speech in America, and though the effects of an insult or a shove may be identical, we excuse one and not the other because if offensive speech were punishable, there would be no end to it.
The "chilling effect" is a concept often talked about regarding speech. Speech is 'chilled' when someone declines to speak for fear of legal consequences. If the Phelpses had been found liable in this case, it would certainly have created a chilling effect, and the effect would have been to make people extremely wary of any public demonstration that would deeply offend its target. This effect would not discriminate based on the politics or policies behind the protest. It wouldn't have a carve out for worthy causes. Any public speech calculated to offend its target would subject the speakers to potential liability. Imagine, now, a group of protesters outside Westboro Baptist Church.
Rather than reexamine the boundaries of the content of speech made in public, I think it might be wise to reexamine the boundaries of what it means to be in public. A funeral is the most private event to happen in the open air. Perhaps it would be better to treat a funeral as if it were occurring in an intensely private space for legal purposes. Then people protesting a funeral would be on the same footing as people standing in the street protesting in front of a person's house, which would diminish the speech protection. I think the principle of free speech perhaps could tolerate that exception. To me, it's a tough call.