Hate Crimes Legislation: the best option?

[Alecto]

The concept was on my radar, but only just barely until I recently got involved with a theatre activism project to broaden discussion:
there are several GLBT rights groups that do NOT support efforts to broaden hate crimes laws to include sexual orientation or gender identity.
(Sylvia Rivera Law Project's open letter can be found here).

Possibly the best arguments that came up within the theater group were that the prison system does absolutely nothing by way of helping the person who commits the crime: they're thrown away for awhile to get angrier and angrier until the day their time is up and they're back out on the streets. Furthermore, given that transpeople (as well as people of color) are disproportionately sent to prisons to begin with, and that prison guard standards are often shy of ideal, we're essentially loosing a homophobe / transphobe into a playground of oppression. They get to continue their violence with little or no further consequences.

I know the next logical question is: "Ok, so the prison system maybe isn't the best option we've got: what's your alternative?".
So far we've come up with things like restorative justice, queer response teams (both to stop crimes in progress, and provide reliable and free EMS to victims who often might not trust the institutions that already exist to treat them fairly), public shaming of the offender (that one's not my favorite)...
Ultimately, we all decided that there's probably even more better alternatives out there, but that this discussion needs to be happening in the wider community. So: what do we think?