@dlowan,
It can be seen as a violation of the "no establishment" clause--but it is not the function of Federal judiciary to diligently search state and local laws and by-laws and weed out those which violate or seem to violate portions of the American constitution. Only insofar as someone takes legal action against someone else, and that person objects that the statute under which they are prosecuted is not legally valid, or a Federal prosecutor takes legal actions against an agent or agency of government for violating civil rights would such a matter come up for review in the Federal courts. If no one has ever been prosecuted for an offense, or been denied their civil liberties under such a provision--or, having been so prosecuted or denied, has not sought relief in the Federal court system, then it would never have been reviewed.
According to what i've been able to find online, this provision along with several others were held over from the 1868 constitution when a new constitution was put before the voters and approved (by about 5-3), resulting in the 1971 constitution of the state. Since that time, this atheist was elected to the Ashville city council, and a private individual has threatened to sue the city. The election, held in December of last year, is too recent for a case to have found it's way to the Federal courts, and i have found no information to the effect that any U.S. Attorney's office has intervened.
If the city of Asheville were sued (it seems that it would be sued for violating the 1971 constitution in allowing a council member who is an acknowledged atheist to be seated), then they might come under the scrutiny of a U.S. Attorney. If the city were sued, and vindicated in the state courts, then there would be no need for Federal intervention.
Only if the city were sued, lost, appealed in the state court system, lost, and eventually appealed to the Federal courts would this come under Federal judicial scrutiny. It is, in the slow grind of government and the courts, a far too recent event to have made it that far through the system. And, this is one of those sorts of things in which the councilman might well serve his entire term before it were resolved in the courts, if it even ever ends up in the courts. Remember, someone has to take someone else to court over the matter for it to be reviewed.