Interesting, I always thought it was "tow." Here is an explanation of the origin and meaning.
The phrase "toe the line" is equivalent to "toe the mark," both of which mean to conform to a rule or a standard. The Oxford Dictionary of Word Histories (Oxford: Oxford Univ. Press, 2002; ed. by Glynnis Chantrell) says, "The idiom toe the line from an athletics analogy originated in the early 19th century" (514).
The specific sport referred to is foot-racing, where the competitors must keep their feet behind a "line" or on a "mark" at the start of the race--as in "On your mark, get set, go!"
So one who "toes the line" is one who does not allow his foot to stray over the line. In other words, one who does not stray beyond a rigidly defined boundary.
The New Dictionary of Cultural Literacy, Third Edition. 2002.
hoist by one’s own petard
(pi-TAHRD) To be caught in one’s own trap: “The swindler cheated himself out of most of his money, and his victims were satisfied to see him hoist by his own petard.” A “petard” was an explosive device used in medieval warfare. To be hoisted, or lifted, by a petard literally means to be blown up.
You are correct when you say "toe," however, it appears that Michael Moore and his ilk appear to be "towing" that line further and further to the left.
Some people say the sport referred to is boxing. In old time boxing matches the opponents had to "toe the mark" at the start of each round. Rounds went until one or the other boxers was knocked down, then a rest period was called. Failing to come up to the scratch mark and toe it at the start of the next round signified defeat.