You are right that at some point what is and is not acceptable speech becomes a judgement call but at the same time some speech is so incredibly corrosive to the health of a community that you must draw that line. All social media sites should be taking that lesson from Reddit.

"If you don't like the moderation just start your own sub" is a nice idea but breaks down in practice. The very reason you visit Reddit is to discover and discuss links. If you don't like how a sub is moderated you can start your own but that doesn't mean anyone else will use it over the other one. If there is a general sub for topic X just starting a sub that is "X with stricter moderation" isn't very likely to attract a lot of users. However, if you frame it as "X for people [pro/anti]-hate" you are going to draw in the passionate minorities of users on either side which will cause extremification rather than moderation. Having an extreme sub may also attract users who are only marginally interested in X but have a deep interest in the hate (for or against) which will cause further extremification.

This extremification can in turn poison the general subs. On Reddit if a link is posted in multiple subs there will be an "other discussions" link which will show you where else that link has been posted. If a news story is posted in both a general sub and a [pro/anti]-hate sub the users from the latter can easily find and post/vote on the general sub's discussion. (Not to mention posting Google-able quotes and outright direct links to other subs.) This was overtly a major problem with /r/fatpeoplehate. If a link (or quote or screenshot) was cross-posted to FPH you could count on FPH trolls to show up in short order and flood the general discussion with their hate. Even when it's not that overt the extreme users can subtly shift the tone of a general sub towards their point of view over time, such as with rampant racism on /r/worldnews.

The most straightforward solution to this that I can see is to 1) moderate general subs so that their tone remains, well, moderate, and 2) ban extremely offensive subs (using the standards of society at large as an indicator of what is too extreme). That's not to say this is an easy task or even clear-cut in many cases and it will prevent some people from expressing their legitimate opinions, but if the thin extremes at the end of the bell curve need to be cut for the benefit of the fat middle on a privately-controlled website I do not see a problem with that. (I do believe that governments should not restrict speech but social media sites are not governments and should not be held to the same standards.)

EDIT: Also, to clarify, the third paragraph of my original post was regarding people's perceptions of Reddit in aggregate, not how it actually is. Reddit (for a time) had a reputation as "progressive" but the reality does not and did not not match this reputation. I did not intend it as an attack on people who have non-progressive views (I obviously consider myself a progressive), I was merely providing examples of how the reality of Reddit's aggregate political views (to the extent that millions of people can be classified as having aggregate political views) are (or can be perceived as) "progressive" on some prominent issues but non-progressive/conservative on others.