The knee jerk reaction when would that Justice Souter would be retiring was that because Obama would like appoint someone with similar views to Souter the balance on the court would not change for the immediate future. As time to digest the announcement has passed more nuances are being seen.
Michelle Boorstein writes in the On Faith:
Souter is known for voting for and writing for a strict separation of church and state, which for him meant rejecting any taxpayer money for the direct support of religion, including vouchers for religious schools, for example. Interestingly, he also argued strongly that the First Amendment's free exercise clause should be understood to exempt religious practices from laws that burden those practices - even if the government didn't intend to suppress religion.You can read it all here.
In other words, he was known for robustly arguing for church-state separation, but also strong support for individual religious freedom.