Rushdie is on the money here. I can actually understand why Germany and Austria (and maybe some other countries like Poland) would ban holocaust denial - different jurisdictions do have different concerns arising from different historical experiences. At least for a period, you could argue, the Holocaust should not be denied within the borders of the countries most associated with it.
But that's open to debate. The overall message is that freedom of speech is far too precious to be trumped by hurt feelings.