Proceedings will be dropped against X. Any conviction is going to be unlawful under the Human Rights Act being an act incompatible with the Convention (ECHR) right to freedom of expression. (Section 6 and Sch 1, HRA 1998). The issue turns on whether the speech was 'insulting'. The European Court has stated on many occasions that 'freedom of expression constitutes one of the essential foundations of a democratic society and one of the basic conditions for its progress and for each individual's self-fulfilment. Subject to para 2 of art 10, it is applicable not only to “information” or “ideas” that are favourably received or regarded as inoffensive or as a matter of indifference, but also to those that offend, shock or disturb' (see Handyside v UK  ECHR 5493/72 at para 49). More recently Sedley LJ stated that 'free speech includes not only the inoffensive but the irritating, the contentious, the eccentric, the heretical, the unwelcome and the provocative provided it does not tend to provoke violence. Freedom only to speak inoffensively is not worth having.' Redmond-Bate v DPP (1999) 7 BHRC 375 at 383.
However, Article 10 is a qualified right. In other words it can be restricted in the public interest. However, such restrictions must be both convincingly established and proportionate. Here a three limbed test needs to be satisfied. First, is the restriction prescribed by law? Yes the POA. Second, does the prosecution further one of the legitimate aims set out in Article 10(2). Yes, the protection of the rights of others. And third, is the interference is 'necessary in a democratic society'. The answer is clearly no. In Percy v DPP  EWHC Admin 1125 the defendant was prosecuted for trampling on the Stars and Strips in front of a group of US personnel. She was convicted. She appealed from the Magistrates Court by way of case stated to the Divisional Court which reversed her conviction. The Divisional Court concluded that her actions did not go beyond legitimate protest on a matter of public concern (Star Wars Shield) - as such it represented a disproportionate interference with Article 10. Her conviction was quashed.
Moreover, the activities of the Church are a matter for legitimate debate. Is it a cult? Certainly their activities have been a matter of concern to HMG in the past: http://www.justis.com/titles/iclr_s7530027.html This is a matter for legitimate debate. There is a public interest here is not 'chilling' speech. In Giniewski v France  ECHR 64016/00 the applicant complained that a conviction in France for public defamation of Christianity was a disproportionate interference with his Article 10 right. The court agreed. In doing so it noted that "While the published text, as the applicant himself acknowledges, contains conclusions and phrases which may offend, shock or disturb some people, the Court has reiterated that such views do not in themselves preclude the enjoyment of freedom of expression. Moreover, the article in question was not “gratuitously offensive” or insulting, and does not incite to disrespect or hatred."