To understand why the Reid proposal is a bad idea, you need to understand where it came from.
Not all laws are passed by Congress -- it doesn't have the time to work out the details of implementation. After a law like the BCRA (McCain-Feingold) is passed, it's up to the relevant adminstrative agency to fill in the gaps through a rulemaking process.
In this case, Congress said nothing about "internet communications" in defining what "public communications" were under the Act -- that is to say, which speech and what activity gets regulated under all federal campaign finance laws?
So the FEC stepped in, and they issued a regulation that stated that "The term public communication shall not include communications over the Internet." 11 C.F.R. § 100.26. (Yes -- Reid's language exactly.)
In this case, Judge Kollar-Kotelly found that the rulemaking failed both parts of the test. On (1), she held that while Congress did not expressly include the term "Internet" in its statutory definition of "public communication," because it did include the phrase "any other form of general public political advertising," it had to intend to encompass Internet advertising as well. On (2), she found the regulation to run directly counter to Congress' intent in passing the BCRA, for reasons I discussed here. (Basically, it's that Congress' higher intent in regulating all coordinated communications supersedes the regulation in intent.)
So, the Reid bill is intended to say, "No, Courts, this is really what Congress itself wanted. The regulation struck down is exactly what we wanted" And it's perfectly legal and reasonable to do, to buttress the FEC's initial regulatory attempt here, and it would become the law of the land.
But that doesn't make it smart. By not regulating internet communications at all, it opens up massive loopholes, from fully-funded websites directly coordinated with campaigns to even removing campaign/PAC/527-funded websites from having to disclose that they are, in fact, funded by a campaign. As I see it, it's not that the Internet should be completely free of all CFR; it just shouldn't be more onerously regulated than any place else, and regulations should clarify that ordinary, non-paid online advocacy can continue unabated. But by excluding from regulation all political activity, you also exclude from regulation 527 speech, PAC speech, political party speech, and it's just too broad.
I'm happy to answer any questions you have, and I hope this was helpful.