1. So why not just send the people who are destined for Hell to Heaven as well and just cease their free will?
The cessation of free-will is about the choice between God and evil. Not the free-will between electronic or classical music, for instance.
Both souls in Heaven and Hell doesn't have free-will between God and evil anymore.
Souls go to Heaven or Hell immediately (and automatically) after the "hour of death" (we don't know exactly about the metaphysical process of death like "how much time" it takes. Jews say 11 months and Buddhists 49 days, the Catholic Church only says "hour").
This is called the Particular Judgement and finally someday they will be judged publicly in the Last Judgment.
If free will can be ceased as you claim then no one should be sent to Hell.
And this is not my claim, I just accepted it. This claim is from Christianity for several centuries. But I suppose you're not familiar with mainstream Christianity, right?
Everyone, both good and bad, should be sent to Heaven and then it's just simply a matter of ceasing their free will and everything will be fine and dandy.
But we hope (and pray) to everybody goes to Heaven. The only beings certain to go to Hell are the demons.
2. So God created one place where there is no free will and no evil (Heaven) and another place where there is free will and evil (the physical/natural world).
Even the spiritual world will have (isolated) evil forever.
This clearly indicates then, that God is both good AND EVIL.
God did not created Hell or evil.
That's Satan creation.
God only created the inevitable possibility of evil just like an architect creates the inevitable possibility of a suicidal jumping from a high balcony. This is called normal risk.
Satan was the first fool to have the idea to jump from the balcony to nihil.
Just because he didn't accept God taking the human nature inside the Godhead.
Satan became the lowest level of existence and Mary the highest level below God. Mary is the nearest being to God. The human nature is totally elevated in Heaven.