There are two sets of myths regarding the Establishment Clause -- there is the left wing myth that the Clause was intended to enact an absolute Separation of Church and State which would prevent any public expression of religion in public life or religious arguments for public laws. And there is the right wing myth that the Clause was only intended to prevent the erection and support of a national church.
The reason why the conservative idea of "the EC prevents the Establishment of one national denomination" misleads is because such a theory presupposes that the federal government has the constitutional power to engage in religious activities, or do whatever it wants in matters of religion, as long as it doesn't violate Free Exercise Rights, and short of establishing a national church.
This is where we the importance of the doctrine of enumerated powers comes in. To our Founding Fathers, such was essential to protecting individual rights. Indeed many of them argued a Bill of Rights was not necessary given that the federal government was endowed with so few powers over so few areas of life to begin with. And specifically, on religious matters, many key Founders argued that the First Amendment's religion clauses were not necessary because the federal government had no power to interfere with religion in the first place.
Indeed, this assumption of government powers over religion seems to be the late Leonard Levy's main problem with Justice Rehnquist's assertions made in his Wallace v. Jaffree dissent, which according to Levy, assumes an empowerment over religion that the federal government originally never had. Levy writes:
"[T]he clearest proposition about the establishment clause is that it limits power by placing an absolute restriction on the United States: 'Congress shall make no law....' Reading an empowerment from that is about as valid as reading the entrails of a chicken for the meaning of the establishment clause or for portents of the future."
In his Wallace v. Jaffree dissent, Rehnquist criticizes Everson's (the case which established "Separation of Church and State" as a constitutional metaphor for the Establishment Clause and its application to state governments) over reliance on James Madison, his Memorial and Remonstrance, and his support for Jefferson's Virginia Statute for Religious Freedom to determine the original meaning of the First Amendment. Rehnquist writes:
On the basis of the record of these proceedings in the House of Representatives, James Madison was undoubtedly the most important architect among the Members of the House of the Amendments which became the Bill of Rights, but it was James Madison speaking as an advocate of sensible legislative compromise, not as an advocate of incorporating the Virginia Statute of Religious Liberty into the United States Constitution.
Some scholars, such as Philip Hamburger, in his Magnum Opus Separation of Church and State (written to debunk the doctrine), likewise argue that when the First Amendment was drafted, it was not understood to enact Madison's "no-cognizance" standard. However, what must be stressed: The unamended Constitution itself -- a document of precisely enumerated powers -- leaves religion entirely unendowed. Indeed, other than Article VI which prohibits religious tests, the US Constitution literally takes no cognizance of religion.
Walter Berns helpfully reminds us of the significance of religion's unendowment, by noting some of the powers that Congress was constitutionally given: "[W]hereas...it grants Congress the power 'to promote the Progress of Science and useful Arts' (see Article I, section 8), it nowhere gives it the power to promote religious belief. Rather, the First Amendment seems to deny it such a power." Making Patriots, p. 43.
It is no wonder that two Cornell scholars dubbed it, "The Godless Constitution."
Yet, the First Amendment -- indeed, the entire Bill of Rights -- as originally conceived, applied to the federal government only; the states were left free to enact their own establishment, free exercise, and free speech policies (with many Founders such as Jefferson hoping, indeed, expecting that states would do a better job securing natural rights than the federal government; but this was before the 14th Amendment; and as the Civil War demonstrated, Jefferson was wrong in thinking states would be better guarantors of natural rights).
Indeed, knowing all of this, we can understand that the Founders thought the First Amendment to be declaratory in its language: Such was an acknowledgement, a reminder if you will, that the federal government had absolutely no powers over either religion or speech. In James Madison's words, the First Amendment was "a positive denial to Congress of any power whatever on the subject." And regarding "establishment" related issues, according to Madison, Congress's lack of power over religion prohibited it from even having Congressional Chaplains or making religious proclamations.