As a Christian, I firmly believe in seperation of church and state. I don't care if it was taken out of context, it is imperitive. However, in a free society with no Department of Education and more privately owned/funded schools, with absolutely no ties to government at all, the entire idea of "No prayer in schools" would be squashed as the seperation of church and state argument would be void.
Also, it would be more likely for us to seek out schools that fit the atmospheres we would want our children to be educated in. Many schools would, in fact, be non-religious with no tolerance for religous expression to meet the needs of those who desired their children to be educated in such an atmosphere, while some would be, as we have now, Christian/Muslim/Jewish/etc. schools.
Seperation of Church and State should also be applied at the non-educational level. For instance, churches should NOT have to pay STATE taxes, at all, period, end of point. Nor should STATES support churches in any way. But, just as all profitting businesses of all sorts, should be taxed by even the "small" federal government we as RP supporters dream of, and NOT funded. This would be the same on the Hospital level, as profits must be made in order to pay doctors, nurses, energy requirements, as well as the church which is the foundation for which the hospital is run by so they can expand their hospitals so that all reaches of the US have access to medical care.