My feeling is that a free and democratic China would be something that the people of Taiwan would want to attach themselves to. It is what their own civil war was all about that resulted in the free Chinese being on that island in the first place...so if the mainland became "free" and based on republican principles, the ROC would naturally join them, figuring that they had finally prevailed in the decades long struggle.
On the other hand...they will fight being grafted into a totalitarian system which is what the CCP is now. That's the real issue. Not whether the people on Taiwan are free and independent or not...they already are. Having spent quite a bit of time over in Taiwan in the late 1990's, IMHO, if the mainland Chinese become free, the issue will settle itself naturally and tensions will reduce dramatically.
I have to disagree with you there. I don't think Chen Shui-Bian and his cronies have any intention of reuniting even if China is democratic. Their view is that Taiwan is a separate country and even race of people. They've been doing that in the elementary school systems for years, wanting to remove ROC from the title and change it to ROT (Republic of Taiwan instead of China). Fortunately, Taiwan didn't lose its sense and defeated the DPP's proposals in the last election.
So I don't think that by itself will change the issue. It may reduce tension, but if Taiwan is still unwilling to reunite, then I am almost certain that even a democratic China will use force to prevent independence.
The next move will be on Chen's. If he moves towards independence, then I'd agree with you that war will break out over Taiwan.