Absolutely, I agree with you. There does need to be such a separation. As a man of faith, myself, I feel it is necessary to separate my spiritual beliefs from my social responsibility as a voter. I wish more people did the same.
However, I think that if the people of Oklahoma (which is dead center in the oft-called "Bible belt") want to have the 10 commandments on the grounds of their state Capitol then Satanists in New York should leave the hell alone. If there was a large community of Satanists in Oklahoma (which I doubt), their complaint may be valid. On the other hand, if we were putting monuments of specific faiths on the Federal Capitol grounds, then I would side with the Satanists (which feels weird to say) and agree that if we have one, we should have them all - so it's probably best to have none.
My point is that the beauty of state government versus federal is that you can be more specific to the people living in the state itself. If a bunch of people in a community want to have their community centered around their faith and they all agree, then just leave them in peace*. New York Satanists are just trolling Oklahoma. Their "proposal" is nothing more than flamebait.
*Disclaimer: if the community of faith results in the malicious brainwashing and/or exploitation of the members, then this statement is negotiable.