Does Matt's rejection of Judy after their arrest make sense in the context of their relationship? Do you think he could have (or should have) handled this differently?

I think his initial reaction was a valid one. However, I think he chose the "easy way out" by rejecting her ultimately. He would have shown more courage if he had resume their relationship after she proved to him that she was no longer involved in that crowd. The fact that he chose not to do so, shows some cowardice on his part.

I think Matt's reaction was typical of the way he was. He was a really straight and narrow guy and made a choice that he felt was the right one for him. Since we are seeing this from Judy's side and are empathetic to her pain it is easy to say he should have come back. However, Matt too, had a side and his was to get away which we would probably all be happy about if he were our own child in this situation.

If Matt had been an adult, I would say that his reaction was too dogmatic and unforgiving. However, he was an idealistic child, and his response was perfectly consistent with his character and age.