Examples of resulting wharrgarbl may be found in all the predictable places, like here, and here. And the outrage can really die down -- the chances of this money actually being awarded are low, low, low.
But for the record, I think we have better things to do with Federal money than this. Not out of any particular distaste for Islam on my part, but rather out of a particular dislike for Federal money being used to help build any house of worship, anywhere, whether directly or indirectly.
That, and the fact that we don't have a budget surplus with which to enjoy questions of which private projects deserve public support. Our government can't afford to be doing things like this right now, for anyone.