Grace?

What do you think? Is it going too far? Is it possible to be "too free"? Is there a balance between grace and truth, or do they never conflict? Relevant verse recently brought to my attention: "The Word [Christ] ... full of grace and truth." - John 1:14. Can we be guilty of too much grace? Where is the line between grace and tolerance? When should we take a stand against something? Where are we guilty of "ungrace"?
I'd be interested your thoughts on the subject.
(The picture is of Babette, from "Babette's Feast." Those who have read What's so Amazing about Grace? by Philip Yancey will know who she is.)
Paul says in I Corinthians 6:12, "'Everything is permissible for me'-but not everything is beneficial. 'Everything is permissible for me'-but I will not be mastered by anything."
When life is about what we can get away with, we've missed the point. Christ should be our purpose, our reason for living. "For me to live is Christ." (Philippians 1:21)
On the other hand, we must not forget this: "It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery." (Galations 5:1)
God has been particularly convicting me about judging/condemning others.
"But Lord," I say, "how can I let Joe be completely free? I don't trust him. He needs to be kept in line! I need to show him where he needs to improve--where he needs to grow--and to make sure he is aware of his weaknesses. I need to take a stand against his wrong decisions. I need to balance my praise for him with at least *some* criticism."
God: "I've set *you* completely free, haven't I?"
Me: "Umm... I guess so."
God: "Then let me worry about Joe. Just point Joe to me, and trust him with me. Let me do the convicting. That's my role. I may ask you to be part of things, but that's not the point. Focus on what I want *you* to do. Then you'll experience freedom--and growth--like never before. And so will Joe."
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