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Good for you that you were able to recognize it. I looked around and was surprised to see other people using that quote, even after they were shown the truth. One blog went as far to say that it's "the clearest" United States Supreme Court precedent regarding the definition of natural born citizen. Yikes!

I repeated something cited by others without checking it out thoroughly enough. I have done that before, and it is something for which I try to pay attention, but I am not always successful. In this case, it was not easy to discern because the language is a bit of a hard slog to follow. I did find this bit of text which confirms what you said.

Mr. Barry, in opposition to the motion, made the following points, which he maintained at great length.

Followed by the numbered points of which the one quoted was number "4".

Maybe he believed it to be true, I don't know. We shouldn't assume that anything presented in court must have a kernel of truth to it.

Though I haven't verified it, I would assume that Mr. Barry had an American lawyer pleading his case for him, and that it was the American Attorney's understanding of the law at the time. If it were Mr. Barry doing his own pleading, then he may have been putting forth his opinion based on British law, in which his argument is undeniably correct. If it was however an American attorney, this tends to indicate that this was accepted law as he was taught. This piece of evidence would tend to confirm that:

The New Englander, Volume 3 (1845) states: "The expression ‘citizen of the United States occurs in the clauses prescribing qualifications for Representatives, for Senators, and for President. In the latter, the term ‘natural born citizen’ is used and excludes all persons owing allegiance by birth to foreign states."

http://books.google.com/books?id=gGNJAAAAMAAJ&pg=PA414&dq=Vattel+%2B%22natural+born+citizen%22&as_brr=4&cd=5#v=onepage&q=Vattel%20%2B%22natural%20born%20citizen%22&f=false

At this point, without further information, (and perhaps not even then ) not much of consequence can be made of this case.

This piece of evidence would tend to confirm that:

The lawyer's argument wasn't that the child wasn't a natural born citizen. He was saying she wasn't a citizen at all, despite being born in the United States to a citizen Mother. I know of no contemporaneous evidence that the lawyer might have gotten that idea from.