One may debate how far a government ought to go when presented with such situations, but only the willfully ignorant defend what amounts to fighting words.
I will certainly defend someone's right to commit blasphemy. Burning a Qur'an is blasphemous from the point of view of Islam...and you have every right to do it, just as you have every right to commit blasphemy in the eyes of Christianity, Hinduism, etc.
Needless to say, such acts shouldn't be supported by the government in the form of art grants...but neither should they be prohibited in any way.
(Of course, the government shouldn't be supporting the arts at taxpayer expense in the first place, but that's another subject)