That's the misinterpretation. The separation of church and state does NOT mean you can't have religion or religious references in government; if that were the case, we should just throw the Declaration of Independence out right now:
...the separate and equal station to which the Laws of Nature and of Nature's God entitle them...
and
...We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights...
OH NOES!! Religion in our historical texts!
Let's re-read that particular amendment (1st amendment)
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Let's go to the specific, pertinent parts, in detail(bold for emphasis):
Congress shall make no law respecting an establishment of religion
So far as I know, there have been no laws enacted in the history of the United States that favors one religion over another. If I'm wrong, please feel free to correct me. Having that astronaut take up an item of religious significance does not violate the separation of church and state based on the first statement. Let's check the second part of that article:
or prohibiting the free exercise thereof
Well, that's interesting. It actually would have been illegal to PREVENT them from bringing it up with them. The law is pretty simple: the government can't stop you from practicing what you want, how you want; and the government can't endorse a state religion.
Remember why the pilgrims came here in the first place: they were discriminated against because they did not adhere to the state religion of England, the Church of England. THAT'S what the law is meant to prevent: from creating a state religion, and to let people believe what they want without fear of persecution.
It's the same thing with putting up the Ten Commandments on public grounds. There is absolutely nothing wrong with doing that. What becomes wrong is if they forbid say, the Rig Veda, or the Koran up as well; that violates the second part and the first part all at once.
This is also the reason why the ACLU is really dumb. Their interpretation is that if you serve in a public capacity, you can't show or practice your religion publicly. This is not the case: it simply means that you can't use your position or authority to force that religion on others.