There's another variant of this story from a few years ago, when a man was arrested for wearing a "Give Peace a Chance"/"Peace on Earth" t-shirt in an Albany, NY shopping mall. That story was slightly different -- he'd actually bought the offending shirt at the mall, and his son (who was also arrested) was wearing a slightly more contentious t-shirt, which said "Let Inspections Work" and "No War With Iraq."
I can remember that first wave of mainstream '60s revivalism, in the late '80s. Tie-dyed peace sign shirts were EVERYWHERE, from little kids to soccer dads to dancers in music videos to sitcom characters. And nobody questioned it, nobody called it Satanic (that was what heavy metal was for), it was just this nice universalist thing in our progressive United Colors of Benneton world that was ready to Rock The Vote for Bill Clinton. What a strange blip of history that was.