In my view, moderation should have three goals:

1) Encourage contributions from those whose input is generally valued, while if possible not letting it annoy those with minority tastes.

2) Discourage contributions from those whose input is generally shunned, sheltering those who don't want to be exposed to such content, without making it hard for new arrivals to find an audience.

3) Strike a balance for those who are charming to some and annoying to others, with a compromise that gives the best value to the community.

Alternate way to meet the same criteria more or less:

Three strikes and you're out policy? First time you're muted, it holds effect for something like 10 days. Then you're back in the game with a yellow card (YAY MIXED METAPHORS). Second time same user mutes you, out for a month. Third time, the mute is permanent until muter chooses to un-mute (i.e. as it is now). Muter shouldn't be notified when mutee steps out of penalty box, to dampen the chance of just knee-jerk re-mute as soon as possible.

Think this would keep in line with your criteria, and also, it would re-shift the focus of the mute from punitive to correctional.

Other alternative, because OH MY GAWD is anybody else tired of this week's focus on muting: from here on in, "mute" is the secret word and whenever anybody says it, they're automatically muted. This might be my favorite option at this point.