Bishop Williamson explains traditional Catholic teaching on religious liberty here. I think most people, including Catholics, believe that in a Catholic state, non-Catholics would be forced to convert. His Excellency clears up this mistaken idea.
The subject of religious liberty is one that I have pondered a great deal, as I have seen how giving all religions equal respect under the law has helped lead this country to the brink of destruction. In my mind, religious liberty leads to the worship of the state, as the state appears to be above the fray of competing religions. It also leads to the promotion of diversity in general, a major problem, as history shows that homogeneity best supports stable cultures. Then there is the resulting relativism, the mistaken idea that there are no absolutes. I could go on and on.
However, I know that nothing is perfect in this world, and Catholics like King Henry VIII and Martin Luther can upset the Church's best plans for leading us to heaven.