"My question is why does the mom and pop have to keep their prices flat while their expenses rise?"

They don't.  As I stated, to the degree that they can afford to increase prices, they will.  Since they can't, and Wal Mart can, they will simply go out of business.

" Ina free market shouldn't you charge for the highest price the market can support?"

Yes, but a government mandated wage is not a "free market."

"Can't everyone raise their prices?"

No.

" if the ones who are dumb enough to not raise them go out of business, isn't that their fault?"

No, it's the governments fault because they shouldn't have to raise their prices based on arbitrary government dictates.  They are already at the margins as it is.  Large corporations can afford to pay their employees more.  Small business owners, not so much.  The profit margins are not even remotely similar.