So what if there's heated rhetoric in Arizona? This guy chose to attack the victims. The blame lies squarely with him. I don't blame Al Gore for the attack on the Discovery Channel's office, either. People have the right to say whatever they want. They do not have the right to shoot whomever they want.
Free speech, including heated rhetoric, plays an extremely important part in a democracy. This type of rhetoric gets people fired up and involved. Yes, oftentimes it's hyperbole, but even hyperbole serves a purpose, as any literary critic will tell you. It makes the point abundantly clear. In a democracy, change can only happen when the people are involved in the political process. Free speech is how this happens. The civil rights movement and even the American revolution itself are perfect examples of this, and there are plenty more.
I agree with your main point - free speech is a cornerstone of democracy, and there's nothing wrong with hyperbole. But there is a problem with lying, smearing, and basically saying anything to promote your own narrow interest and pander to increasingly segregated sub-groups of the population who never need to think, debate, or question anything because they've already figured everything out and the world is always black and white, never shades of gray. This is a far faster growing demographic of the American electorate than the Latino population.
The major problem for me goes back to the old saying "you have the right to your own opinion but not your own facts." Much of the "free speech" these days in politics are simply lies, and those saying them know that. But there are no consequences to acting this way - only rewards. Since the average voter spends far less time discussing and/or following politics than watching American Idol, the politicians know that the more a lie is told, the more people will believe them, and the louder and more controversial you are, the more likely they are to hear your message. Helping this along - take your pick of Rush Limbaugh, Glenn Beck, Ann Coulter, Keith Olbermann, or blogs such as restate.com and dailykos.com - everything they say has to fit into a narrow worldview they are promoting and which has turned them all into millionaires. Facts and real debate are the least of their worries - they barely know the basics about 75% of what they are talking about. To me, this is not a recipe for effective and healthy long-term political debate. Sure it isn't solely responsible for the decision of one lunatic to shoot a public servant. But it doesn't help the situation either.
And just to mention something else - the more central money continues to become to politics and campaigning (in the age of the endless, $1 billion campaign), the more necessary it becomes to continually "fire everyone up." This is of course not done through informed discussion, but through statements and actions that ensure that there is constant conflict and that keeps people angry. And this is far more prevalent in the Republican party today than the Democratic party. The moderate Republican is virtually extinct - how Susan Collins and Olympia Snowe are still Republicans is beyond me. And moving to Arizona itself, take a look at the transformation of John McCain over the last 5 years. He's gone from elder statesmen to irrelevant demagogue. This is due of course to the rise of Sarah Palin and the Tea Party, and their continued "free speech" will only continue this trend. And frankly in my opinion they will never be nearly as effective at governing than at being a protest movement, because they are much better designed to be latter than the former. If I were a Republican, this would worry me - Newt Gingrich didn't work out the first time.