This, I think, is where the 'law' comes in. The law is meant to show us where our hearts are wrong. We read that we are commanded to love our neighbor as ourselves and we say, "Hmmm...... I don't really love my neighbor that way, there must be something wrong with my heart!" The law is meant to show us our sin and point us to Christ, but that is all. The law does not *keep* us in Him; does not *prevent* us from leaving Him, it only turns us in the right direction. Once we have found Him and He has changed our heart, the law kills the Spirit.
We *are* instructed to be DOERS of the Word not just hearers, so we know there is action required. I think we have tried to make people be DOERS by making rules to ensure that they DO. Instead of encouraging and promoting and teaching changed hearts, we have focused more on making sure everyone is DOING - or at least making sure it *looks* like everyone is DOING. I know this is almost heresy in our Beachy Mennonite circles, but I don't believe unity and uniformity are necessarily one and the same. I don't think God intended them to be one and the same. We have adopted the idea that they should be one and the same and the only way to accomplish that has been to ensure that everyone is DOING the same thing by setting out a list of specifics.
This, then, is really the conflict between the "Heart" and the "Rules" people: It is not *whether* there should be any rules, but WHO MAKES THE RULES.
What the "Heart" people are saying, is that God has already made the rules! He has already set down what is right and wrong. He has said "Be modest", "Don't steal", "Love your neighbor", "Be kind", "Think on these things"...... The "Rules" people seem to think they need to 'help God out'. It's not enough to let people obey God's rules - they might not all interpret them the same way! If God says "Be Modest", we need to define it. If God says "Don't steal", we need to define it. And by being so intent on defining everything, we miss the Spirit of the Law entirely!
As churches, we do need to hold up what God has said is right and wrong/good and evil. The problem is, we have become so focused on specifics that it is almost impossible for us to allow people to live out their Christianity in the broad measures of what God says is right and wrong. The "Heart" people's tendency then, is to be so general in their call to right living that almost anything seems to qualify as right living. The bottom line is this: We are called to be doers; changed hearts produce changed actions. Changed hearts produce people who's deepest desire is to know what God says is right and wrong and, in turn, do it. There may be some place for restrictions that are not *Saving* but are cause and effect 'saving'....as long as they are clearly marked as such! Let us not teach as Gospel and Truth what the Bible does not spell out as Truth. And, while we do need to decide what modesty (or any other Biblical principle) looks like in our own church or personal life, let's focus on calling people to Holiness - to what God says is right and wrong (modesty vs immodesty) and stop focusing on our own personal/church's application.