Nah, that was some overstepping of boundaries I think. I would agree if prayer were forced, but it wasn't. There were a lot of changes from moments of silence in the morning, to having a prayer meeting outside by the flag pole or something. Not all of it violates Church and State. I think that if a group of students and teachers of like faith wish to gather in the morning before school starts on school grounds and have a prayer group or something; that there's nothing wrong with that. Why not? No one is forced to participate. And I think we've taken it so far as to not allow any discussion of theism in classes. However, religion has had a profound impact on the course of human history and thus I think it to be a valid topic of intellectual and scholarly discourse. Maybe we shy away from it because there could be some preaching instead of teaching; but it's not like we couldn't handle it properly. And then you wouldn't have any debate on evolution/creationism because creationist theories can be discussed in some theism course whereas evolution can remain in the science course.
If we just use a bit of reason and logic I think there are ways to at least slightly satisfy all sides. That is, if we want to use a bit of reason and logic.
At first I was thought you were arguing the SCOTUS overstepped in Wallace v. Jaffree.
Wallace v. Jaffree, 472 U.S. 38 (1985), was a United States Supreme Court case deciding on the issue of silent school prayer.
An Alabama law authorized teachers to set aside one minute at the start of each day for a moment of "silent meditation or voluntary prayer," and sometimes the teacher of the classroom asked upon a student to recite some prayers.
The specifications are different from having prayer groups before school starts on school grounds.. and I think that seems fine. I don't think that is controversial at all.
But in case of Wallace v. Jaffree, I think the court did the right thing. It appears that the teachers were encouraging prayers in class and having the students lead them, which is very wrong. Jaffree complained his children were being ostracized because of their religion and indoctrinated.
The thing about this moment of silence/prayer is that it seems to favor the Christian religion only. Christians don't really have strict tenants about praying, when, how, and how many times a day. So if the school wants to a give moment of silence in the morning it will also have to give a moment of silence in the afternoon for Minchah prayers/moment of silence for Jews, proper time for Muslims to have a moment of silence too, and other faiths.
Even if the school is all Christian it still isn't right for them to encourage student lead prayers, because it's a public school. A student of a different religion could come in, and be ostracized and easily feel unwelcome. School just doesn't seem like the place to do it. I don't see any problem with clubs or letting students pray together before class as you said. I don't even see a problem with a school allowing time for people in religion to pray or follow dietary or any other tenants in school, the school and teachers just shouldn't lead the entire school in one direction or the other. I do think it will just cause the student body to start singling out minority students in some fashion, and some people like their religion to be private.