It's one thing to forbid dancing, hand-holding, and the like at their own school. But to forbid a student to attend prom at another school is ludicrous; that's no threat to the school. It is upsetting that this MSN writer chose not to provide the Baptist school's explanation for not allowing dancing, etc., and how this student's' perceived moral compromise could spread to his classmates. At least that much should be allowed to be said. But nonetheless, I cannot see at all how any "fundamental," "Bible-believing" Christian can outright forbid our freedom in Christ to follow the Spirit in matters allowed in Christian liberty. Neither dancing, nor hand-holding, nor consumption of alcohol is forbidden in the Bible (see 2 Samuel 6:14-16; Psalm 104:14-15). On the contrary, drinking wine is itself commanded and assumed in the observation of the Lord's Supper, and our Lord himself drank wine (Matthew 26:27-29). Jesus even compared the Christian life to the joy of new wine (Luke 5:33-39).
More than just making Christians look like a bunch of total idiots, I'm afraid that this unbiblical legalism turns people in on themselves and away from Christ and his "alien righteousness." The Pharisees thought the kingdom would come by their own efforts in the Law and thereby failed to learn what mercy is. We need to make room for people to have faith in Christ and his deeds, not their own. Martin Luther counseled thus to all legalists who forget we are justified before God by faith alone and not by adhering to religious rites and customs and laws:
[The Christian] will meet first the unyielding, stubborn ceremonialists who like deaf adders are not willing to hear the truth of Christian liberty [Ps. 58:4] but, having no faith, boast of, prescribe, and insist upon their ceremonies as means of justification. Such were the Jews of old, who were unwilling to learn how to do good. These we must resist, do the very opposite, and offend them boldly lest by their impious views they drag many with them into their error. In the presence of such men it is good to eat meat, break the fasts, and for the sake of the liberty of faith do other things which they regard as the greatest of sins. Of them we must say, "Let them alone; they are blind guides." (On Christian Liberty)