Reagan was very idealistic in the way he saw America. Sometimes that was a bad things, sometimes it was wonderful. Reagan made people believe that America was great, and that was a good thing, but once he was gone, and people who didn't share his idealism or intent took over, it has caused major problems for the GOP. The current push of the Religious Right, in particular, is not what Reagan would have wanted. He believed in an America where everyone had strong personal morals, not one where they tried to legislate their morality into being.
You may well be right in that deep in his heart, Reagan didn't support legislating morality, but his political positions and Supreme Court nominees for the most part at least reflected a support for that position. That's all that really matters in a political context.
It's kind of like saying that George Wallace didn't truly support segregation and thus should get a pass for his public actions opposing integration.
No, I think that one could say that Reagan didn't really fully "understand the nature of the beast". One can see that there is a slight pattern of this later in his life, for instance, after his presidency, he actually offered to help out the AIDS awareness people and they outright refused to allow him to take part in it.
You bring up Wallace, don't forget that Wallace did change several of his stances later in life, because he came to the realization that perhaps things weren't quite as he thought they were. Eitherway, I think its a bit extreme to compare Reagan to Wallace.
The main difference is that Wallace spewed hate, whereas Reagan, I think, simply was too kinda in how he saw people... both his ideological opponents and his allies. He wanted to believe the best about America and people. He wasn't a racist person, and so couldn't really imagine that the majority of people might be. He wasn't a bigot, and had a hard time realizing that there are real bigots out there... many of them. He saw an America where people worked together, so he couldn't see it being split apart the way it is now. And he didn't really understand the nature of extremism, not in America. He didn't think that, 20 years down the road, his friends might take things too far.
Trust me, its hard, being that kinda person, dealing with the realizations that occur when you finally get around to seeing these things. I've been there. The difference between me and Reagan is the level of optimism, I suppose. His beats mine any day.