Originally posted by: Legendary
There are two differing Supreme Court rulings on this. The first, Lynch v. Donnelly (1983),
link, says that nativity scenes are okay (did not violate the establishment clause).
In a later decision, Allegeny v. ACLU (1989),
link, the Court ruled that a different nativity scene was not okay (in violation) due to the fact it also had a banner with a specific religious message "Gloria in Excelsis Deo" (Glory to God for the birth of Jesus Christ)
So it's impossible to answer your question without pictures and/or a detailed description. However, if it were in violation, not only would your city be stupid (and unable to navigate a simple law library) but they would also probably already be in court.
By the way, referencing Nazism will never help your case. Google Godwin.
Edit: "Separation of church and state" is taken from a letter written by Jefferson to the Danbury Baptists, the whole sentence being
"I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should make no law respecting an establishment of religion, or prohibiting the free exercise thereof, thus building a wall of separation between Church and State."
Notice the quotation of the
establishment clause
Jefferson essentially wrote the Constitution, so there has always been a high correlation between the phrase "separation of church and state" and the Constitution.
2nd edit: My personal opinion is that, as a matter of law it may be illegal, but FFS it's the holiday season, get the stick out of your ass. I'm an atheist libertarian and even I don't give a crap.