I think it speaks less to people's religious feelings and more towards the rather apolitical and apathetic alternative music culture at the time. If I recall the atmosphere at the time it was less "how dare she say that about the Pope?!" and more "how dare she co-opt the public stage for controversial/'political' speech?!" I also don't recall the outrage at her SNL performance even being particularly or especially by Catholics in particular, though I'm sure it was stronger among them.
The rage around her Pope-photo-tearing photo on SNL I think was about: we're trying to sell/watching a entertainment products here, and now you've just gone and made things intense. They just wanted the dancing bear.
She was an intense personality, an artist, not an entertainer. Maybe getting a billboard #1 single and becoming a sensation was the worst thing that could have happened for her. People just wanted to be entertained -- they wanted the fantastic voice but without the powerful emotions and convictions behind it -- and she didn't want to be a 'product'
I agree it's especially jarring in the context of a Bob Dylan tribute.