It’s hard to imagine how the portrayal of the Prophet Muhammad as a suicide bomber in the current climate could not be construed as racism and a deliberate attempt to insult and offend the maximum amount of Muslims possible. But if anyone is an any doubt as to the nature of those cartoons they should look at the history of shady right-wing authoritarianism of the paper that printed them:
http://dearkitty.modblog.com/core.mod?show=blogview&blog_id=807007
What is to be done about the cartoons? They should be condemned as a calculated attempt to fuel anti-Muslim and anti-immigrant sentiment by a section of the Dutch right. They should not be banned but nor should they be accepted.
You pose the question on whether there should be limits to free speech. I would argue yes, freedom of speech is not an unconditional right but one that is accompanied by responsibility. There is no limitless right to free speech on this message board, all number of things are banned. Recently a BNP member was booted off the board and no one raised an eyelid. The left has a long principle of "no platforming" fascists, actively denying their right to free speech.
Yes I was in favour of the original R&RH Bill but I’ve rabbited on enough about that already. See the relevant threads for my reasons.