You are right a muslim temple/community center isn't going to hurt anyone but one so close to ground zero is still considered offensive by many Americans. People have the right to be offended by anything they wish. Personally, I'm offended by the Christian church across the street and the planed parenthood center but I acknowledge their right to be there. I will even defend their right to build where they did.
If I thought the Reverend was burning the Koran as a way to hold hostage anything then I wouldn't even suggest talking to him. To the best of my knowledge he is merely expressing his feelings towards the muslim faith just like people who burn the American flag to express what they think of the USA.
Like it or not, freedom of speech means more then just opinions you agree with.
I think a solution where you put the Imam and the Reverent together and say 'Both your actions are offensive to the other. I suggest a compromise that fixes it.' This stomps on no one's freedom of religion or freedom of speech.