Given that it actually violates the policy mentioned, Rackspace absolutely has the right to do this, and I don't hold it against them. They did what they thought was right for this situation. Unfortunately it won't have any effect on the Koran burning event.
Personally this makes me more likely to purchase hosting from them (unless I wanted to make something offensive like this).
Counting the minutes until we hear a politician claim that this violates first amendment rights ...
Exactly, they agreed to Rackspace's conditions when they purchased hosting from them. First amendments have nothing do do with this considering it's not the government which is censoring here but the company providing the service. The only thing the church can argue is that it's a breach of contract.
First amendment free speech rights applies to government censorship not to corporation's censoring things done with their services.
But did the actual website contain hate-speech? I know these guys are clowns, but internet-archives only has an old page from 2008. My google cache has some crackpot pages, but nothing that rises (in my mind) to the level of hate-speech:
Personally this makes me more likely to purchase hosting from them (unless I wanted to make something offensive like this).
Counting the minutes until we hear a politician claim that this violates first amendment rights ...