I'm going to steal this from Hugh Hewitt. It's an excellent explanation of the opposition to the Ground Zero mosque and the legal side of the argument.
The trouble is that opposition to one mosque in one place does not a bigot make, though certainly there are anti-Muslim bigots in America. The various straw men put forward and beaten down by Bloomberg et al serve only to deepen the anger of those opposed to one mosque in one place because of their concern over the politicization of Ground Zero, and the other line --taken by Pelosi in the comments above-- that the mosque at Ground Zero is a "local land use decision"-- is instantly understood as not only quite obviously absurd but also political cowardice, especially after the president entered the debate.
As a lawyer who has long represented churches and religious schools in land use disputes, the basic law is this: The government may not constitutionally treat one proposed religious land use differently from similarly situated other religious land uses, and the government may not single out religious land uses for discriminatory treatment in ways that uniquely burden those uses.
By contrast, the government can and does zone land to serve the general good,and in the course of doing that, it may treat religious land uses as one category of land use that will be treated in specific ways, provided those ways are not intended to burden or discriminate against that class of land uses or a particular denomination.
Thus New York City or the state or even the federal government could chose to protect the entire area around and including Ground Zero from all uses that are intended to exploit proximity of the hallowed ground to send messages of any sort. None of these governments could single out the Muslim faith for special burdens or prefer a different faith seeking a shrine nearby.
Neutral principles fairly applied are the heart of Free Exercise Clause's protection of religious land uses.
This approach is, for the benefit of the president's speech writers, a fairly recent development. "The writ of the Founders" did not, for example, stop the attempted extermination of the LDS church in the 19th century.
With Nancy Pelosi calling for investigations of anyone opposed to the mosque, we need to stop pretending that Democrats are simply misguided or have different views from Republicans and conservatives. If the demonization of the Tea Party and talk radio wasn't enough evidence, surely wanting to use the power of the federal government against people speaking their minds should. Nazi and communist references are worn, but, honestly, is there any other way to characterize calling for investigating people for speaking their minds about a national issue? This is, frankly, revolting, and Pelosi should be condemned for it.