I'm not sure how you "distort the market" by having different labour regulations in different countries. Spain also gets more sun which attracts a lot of people - is that a distortion? Some countries have more.... attractive tax regimes, some a higher minimum wage, some lower VAT and some lower tax on alcohol. These differences are what makes the freedom of movement such a great thing in my book - if we were all the same, not only would national governments be basically impotent in terms of their financial controls (like, say, the Eurozone) but power would be so utterly diffuse as to be useless. Even if you believe, as you do, that it's better for these things to be uniform across the EU, that doesn't change the fact that entire nations may find themselves disenfranchised, in the same way Liverpool is when it gets a Tory government in Westminster.
I remember in the Scotland debate thread, people were talking about how Scotland having no proper border with rUK would be a problem because people could live in Scotland with its socialist super-state but work in the UK with its lower tax rates, thus starving Scotland of tax revenue. Now, quite aside from the fact that the same people were also advocating Scotland's ascension to the EU (which would allow exactly the same thing), my biggest concern was that people saw countries competing on tax policy as a bad thing. I think it's great! I think countries should be forced to compete for the best employees and companies to be based their, by making it as attractive as possible. Without that competition, with people either forced to stay where they are (the implication of a tighter border between England and Scotland) or otherwise find that all their options have exactly the same regulations and taxes leave people entirely powerless to change anything. You'd better hope that you do like whatever the other nations decide is best, because if you don't, you're screwed. Personally, I much prefer the idea of different areas competing and offering different things.
Then again, Sir Frag, if we ever agreed on anything I think we may as well disband the EU and national governments - clearly some magical 3rd way will have been discovered that's all things to all people!