Government Funds and Religious "Discrimination"

Returning again to a theme we've discussed before . . . Marty Lederman has a detailed and thoughtful post up, at Professor Jack Balkin's web page, called "Government Funding of Religious Discrimination:  The Constitutional Questions and the OLC Opinions."  Here is the opening paragraph:

Government may not, of course, discriminate on the basis of religion when it hires its own employees. So says the First Amendment, the Equal Protection Clause and (with respect to the federal government) Article VI. But what happens to this guarantee of nondiscrimination when the state “devolves” certain social-service functions to the private sector, and then subsidizes such functions by providing direct grants to the private entities performing the services? Can a government provide direct funding to a social-service organization, knowing that the funds will be used to subsidize employment positions that are made available only to persons of a single religious denomination?

I hope to take some time thinking over Marty's points, and to respond in more detail later.  In the meantime, I wonder what my MOJ colleagues think?

Rick