Free will is a myth that is constantly argued by Christians simply because they cannot understand how evil exist in the world. We cannot understand the purity of God nor the brokenness of man. Evil exist not because we "freely" choose to do evil. Evil exist because of our desire to do evil.
The essence of your question highlights this issue. Why would a loving God allow Hitler's death camp? Why not instead say, "Why would a loving God allow my little 'white' lie?" In true what we believe is that there are degrees of sin with God and God certainly should view Hitler's death camp far worst than our little white lie.
In actually to God ultimately sin is sin. And sin is what man desires to do in spite of everything that God chooses to do for us. This is the history of Israel and is just as true today. We are a stiff necked people. We want to sin. If God were to eradicate every sin in the world through conventional means, it would mean eliminating all of us. You may recall this nearly was the result of the Great Flood.
God allows a Hitler or even one of our own white lies to show us the reprecustion of our sin and to draw us toward Him. When David murdered Uriah, the result of his sin was the near destruction of his family and kingdom. But his sin drew him more closer to God and his understand was correct when David said, "Against you and you alone have I sinned." And if you think this is wrong, when there is a tragic event (e.g. tornado, earthquake, etc) one of the first thing people start doing is questioning their existence and flocking back to the churches. Yes, even atheist start up the boards about, "Where is God?"
God directs both the trajectory of a football and the path of a death train. However, every event is planned and calculated to help draw us towards Him. This is the great love of the Father-that in spite of our constant efforts to repel Him, He keeps trying to draw us to Him. Be it in a touchdown or a fatal death. People always seem to question His methods but His motives are very obvious.
Well said HarleyD. Have you ever seen this?
Voddie Baucham on Theodicy:
http://www.youtube.com/watch?v=lD1yv4J6ohE