I think they erred on the side of caution. This was a student led decision, not a school one. It's a school function, but not a required one, where we would see them. Looks like the lawyer didn't feel like making a case for the school, if one should come up. The players pray after the games any way, and no one is suing over that.
If they hadn't modified the uniform, and had instead wrote something on eye black e.g. Tebow, or something to that effect, I think they would have been fine. But altering the actual uniform is likely construed as state endorsement since the school owns the uniform.
There is a fairly well-developed, although ever changing and somewhat circuitous body of jurisprudence on this topic.