A Victory for Tolerance or a Blow to Freedom of Conscience?

In early March, Catholic Charities Archdiocese of Boston (CCAB) announced it would cease its longtime work= with the state of Massachusetts in finding adoptive parents for children. CCAB, one of the top five placement agencies currently working with the state, said it ‘cannot reconcile the teaching of the Church, which guides our work, and the statutes and regulations’ of Massachusetts.
Last week, Massachusetts Governor Mitt Romney submitted a bill= that would grant religious organizations an exemption from the state’s laws, but the bill has not been well-received thus far. While CCAB has been praised for falling on its sword, others have pilloried the organization for leaving Massachusetts kids worse off by making it harder to find them homes.
Is this an important victory for tolerance? Does the state’s law violate CCAB’s First Amendment rights to free exercise of religion? Is there any future for faith-based charities in America?