Well that's a whole new perspective for me. If there's any god figure in this episode I'd say it's the four (or more, who knows) elders granting the chant to the gnome. To me the gnome would only be Satan.
I guess shouldn't engage too much in this kind of discussion not being that educated about it; from my standpoint however: the church may very well represent Satan, as churches are not truly connected with Christianity; so, I could see how the gnome could represent the church, I do not see how he represents god however.
Actually it's really hard for me to grasp what the episode truly is about. They're not exactly straight forward about it. At least two people mention "collectivism" in the comment section:
Dread-Eye God wrote:
The main idea of the episode's message was that the citizens (and the Powerpuff Girls) relinquished their freedoms and individuality for security and harmony. This is called collectivism. It is made prominent when all of the townsfolk are in the exact same outfits and lose a lot of their distinctive appearances due to that. What the Professor says furthers this truth by how he says they gave up their dreams and their individuality for "freedom" away from evil or danger, thus security.
Collectivism and the erase of individuality is very synonymous with Communist theory and philosophy. Communism's main goal is to transcend the earth and its human society into utter perfection, harmony, and total equality. This would mean giving up individuality as individualism is juxtapose to harmony, perfection, and equality due to different personalities clashing.
Capitalism is a very pro-freedom system as it promotes individualism and the freedom to do what you wish economically. This is where the "Capitalism v. Communism' label this episode received originates.
Also, all people dressed in red further connects it to communism.
I guess that last part serves partly as my conclusion. I don't think the main focus of the episode is religion vs society. This doesn't hinder any connection between the Gnome and the Devil though. For me it's more likely that it's about the above mentioned collectivism; I'm not sure about that however.