The problem isn't that there is a lot of grey area between these two ideologies, the problem is that all governments fall somewhere in the middle of the spectrum and you have groups that are pulling/pushing the government in opposite directions. For the most part a Capatalist Democracy is individuals giving up certain rights and freedoms to the collective, with checks and balances in place to prevent the collective from taking further rights and freedoms away from the individual, in order to receive the safty and protection that only the collective can provide.
At the moment the problem in the United States (and several other western countries) is that politicians at all ends of the political spectrum believe heavily in increasing the involvement of government in people's lives. Consider how politicians want to right laws to make gay marriage legal/illegal and none of them suggest that the government should have no involvement in people's lives.
