The most recent case decided by the Supreme Court re: religious displays on public property is the 1989 decision County of Allegheny v. American Civil Liberties Union, Greater Pittsburgh Chapter.
In this case, there were two displays at issue. The first was a display of a creche depicting the Christmas nativity scene, placed on the main inside staircase of the Allegheny County Courthouse. Above the creche was a banner which stated "Glory to God in the Highest." The second display was an 18-foot Chanukah menorah placed next to a Christmas tree with a sign saluting liberty placed on the steps of the Pittsburgh City Hall.
Associate Justice Blackmun wrote that the effect of the Government's use of symbolism "depends upon its context" and that the task of the court is to determine whether in their "particular physical settings," either religious display has the effect of "endorsing or disapproving religious beliefs."
The Court held that the Establishment Clause required the overall display to be seen as conveying a "secular recognition of different traditions for celebrating the winter holiday season." The Court found that because the creche along with the banner above made it abundantly clear that it was endorsing Christian doctrine, it violated the Establishment Clause. However, the Chanukah menorah and Christmas tree were not found to violate the Establishment Clause because while the menorah is a religious symbol, its message is not exclusively religious.
In sum, the Supreme Court's standard of review for religious displays on public property is whether in their "particular physical setting" the religious display has the effect of "endorsing or disapproving religious beliefs."
On October 11th the Supreme Court refused to review a 9th Circuit US Court of Appeals decision, which found that a 43-foot cross, which rests on public lands overlooking the city of San Diego, California, is a "preeminent symbol of Christianity" and is therefore unconstitutional under a provision of California's constitution which forbids religious preference.
According to an October 12th report in The New York Times, the long-running dispute regarding the 43-foot cross will enter a new phase. Back in 1992, as a way of circumventing the Federal district judge's ruling to remove the cross from public land, the city arranged to sell 15 square feet of its public land to a private religious association. The sale was deferred pending the outcome of the city's appeals. Peter Irons, lawyer for the Society of Separationists, who brought the lawsuit, said that his clients would be back in court challenging the sale. Irons stated that the sale amounted to "privatization of the Constitution" and called it a "transparent effort to evade the judge's order."