Perhaps the best "one-stop-shopping" for information on the current court challenge is LawMemo here.

Other sources are found in my earlier post.

At this juncture, the court case will decide whether taxpayers have the standing in court to sue the executive branch over a First-Amendment issue such as the Faith-Based Initiative. If the Supreme Court rules in favor of the Freedom From Religion Foundation, then I assume the foundation will then take the Bush Administration to court over the constitutionality of the Faith-Based Initiative plan.

For historical background on church and state in the U.S., see the category Religion and Public Policy on the right of this blog.