I think his quote was actually:
The justice asked, "Did it turn out that, by reason of the separation of church and state, the Jews were safer in Europe than they were in the United States of America? I don't think so."
Your interpretation seems a bit overreaching IMO. Be that as it may, I believe that Justice Scalia is trying to say that this country was founded upon a belief in a God, which I think is historically accurate (I am not a religious right-winger by the way, in fact pretty far from it).
Here is something I saw on this speech:
http://www.truthout.org/docs_04/112704X.shtml
"Scalia told them that while the church-and-state battle rages, the official examples of the presence of faith go back to America's Founding Fathers: the word "God" on U.S. currency; chaplains of various faiths in the military and the legislature; real estate tax-exemption for houses of worship - and the phrase "under God" in the Pledge of Allegiance."
Anyway, I also think Scalia's point was somewhat overreaching as well. However, rather than chalk it up to a lack of learned knowledge on the subject, I think he chose an example (poor as it might have been) he believes would strike home with his obvious audience in attendance.
It is an interesting subject matter though and I appreciate your take on it, but I disagree with your take on Scalia, he is definately not an idiot. Maybe misguided in is idealogy sometimes, but certainly not unintelligent.