Nononono. I mean what if the guy was fired because HIS OWN mother was a Jew? (Then it would be anti-Jewish discrimination. Is that legal?)
Are you implying that being identified as being Jewish is some sort of slur on a person?
Yes it would be discrimination. No it wouldn't be illegal.
It's somewhat beside the point... but it's important to realize that Smith wasn't fired for being Catholic. I think it's a safe bet that at least one other Catholic has been appointed by the Governor and is still employed. Smith was fired for making comments that upset people... people the Governor was probably relying on for support.
But that doesn't address the question of legality.
You probably realize that there are times when it's legal to discriminate. If you want to hire a babysitter you can choose to only hire females. If you're a casting director for a TV show you can narrow your applicant pool for a particular role down to black males 30-35 years old. If you, as a church employee, want to create a nursery for your church's members you don't have to hire a Buddhist to be the nanny... even if s/he's more qualified than the Presbyterian you choose to hire.
And if you're an elected official who appoints policy makers, you can choose to only appoint (and only keep) those who will benefit you politically.
It would be wise for MD Republicans to criticize the Governor... loudly and often... for firing Smith. They should write letters asking for Smith to be reinstated. They should find a Republican to challenge the Governor next time around. But we shouldn't threaten a lawsuit... the law's unequivocally on Ehrlich's side.