I'm in favor of making the fine for texting/surfing or talking without a hands-free device $1000 minimum for a first-offense.
The reality is that hands-free makes no difference. holding the phone in your hand, or not, has nothing to do with what causes distraction--it's trying to engage in a conversation over the phone. In any situation, that activity does cause more concentration that speaking with someone in the same room.
There are a few studies that overwhelmingly support this.
That being said, I'm not sure how to easily fine someone for using the phone at all--what can you prove without spotting someone in the act of holding a device to their head?
In some ways, the "hands-free" distinction is there only because it is enforceable. The truth is that
any phone use is as dangerous as any other. The aim of any law should be to
eliminate all phone/device use while driving, if safety was the real concern.
I think the only way to do that is to require devices to shut down when in vehicles. Of course, there will be an argument for navigation (I'm one of those that honestly believes that if you need navigation, then you suck at driving to begin with, and are no less distracted than anyone else, but that's a different part of the issue)...
I still look up my route ahead of time, write down my turns on the back of an envelope and carry it with me. Rarely need it, though, because that information is already imprinted. Hasn't failed me yet.