How can the the government of China best be handled?
Our establishment sees it one way, arguing that engagement and dialogue are the best ways to handle China. Since Nixon opened China, the establishment has ignored all but the worst excesses of the Chinese state. When the Chinese killed several thousand protesters in Tiananmen Square, Henry Kissinger, the man (with Nixon) most responsible for opening China, said "China remains too important for America's national security to risk the relationship on the emotions of the moment." He also added "No government in the world would have tolerated having the main square of its capital occupied for eight weeks by tens of thousands of demonstrators." The Bush administration agreed with Kissinger, and gave China little more than a slap on the wrist.
Most president have run denouncing China, and then run administrations friendly to China. Bill Clinton went from calling China a "strategic competitor" to a "strategic partner". Bush agitated for a tougher China policy, but now is friendly with China's leaders.
I agree with our leaders that Chinese prosperity will inevitably lead to changing values and an open democratic society in China, and hence engagement is the best option. What I don't agree with is that China must constantly have its back rubbed by the US in order to maintain stability.
When China was given the Olympics, it was in the hope (encouraged by China's leadership) that this would open up the country to political liberalization. Instead, the government threw dissidents in jail, evacuated thousands of people to build arenas and clamped down on the Tibetans. They won themselves a propaganda prize under false premises. Threatening to boycott seems a perfectly reasonable way to try to win human-rights reform.
So far, I think the increased pressure put on the Chinese has at least in part been effective, as China has agreed to meet with the Dalai Lama. Whether this is lasting is uncertain, but to me it seems clear that we should make a stand on principle.