He was arrested for inciting racial hatred, which is a public order offense, not just for being a racist. It can carry a penalty of up to two years in prison. They also arrested the BNP's founder, John Tyndall, and around 10 other BNP members, some of whom were charged with racially aggravated intentional harrassment.
The charges seems to be based on a speech Nick Griffin made where he called Islam amongst other things a "vicious, wicked faith", made remarks about the Koran, and stood by while other BNP members talked about committing hate crimes.
He claims he was only exercising his freedom of speech and speaking about the dangers of Islamic fundamentalism. But in the speech he also said what he was doing was illegal and challenged the police to come and arrest and prosecute him so he could become a martyr for the BNP cause. He has been convicted of inciting racial hatred before, back in 1998 when he was editor of The Rune, and received a 9 month prison sentence suspended for two years.
From what I have seen of the newspapers, a lot of people, obviously, are happy, but there have been questions about what constitutes freedom of speech and how much it should encompass the right to not be offened, and whether it is right to arrest the leader of a political party for stating his opinion when people, for whatever reason, have voted for him.