Seriously. Stop. Stop saying "so and so is mentally ill" because they hold some belief you don't like. Using that kind of language is like calling people you disagree with "retarded". Before you use the term "mentally ill", please take the time to learn two things:
(1) What mental illness really is, and
(2) That many people have a genuine mental illness
When you misuse the term, especially when used as an epithet, you are causing damage in at least two ways:
(a) You are spreading misinformation about mental illness, which makes it less likely that mentally ill people will get appropriate help, and
(b) You are, by extension, maligning mentally ill people unfairly.
So, please stop.
Okay, in regards to the specific situation at hand...
Point 1:
I am:
* A psychotherapist working towards a doctorate in psychology.
* An atheist and a full-on naturalist of the monist/physicalist variety. In other words, I don't believe in gods, souls, the afterlife, angels, astrology, reiki, homeopathy, reincarnation, telekinesis, or Bigfoot.
None of that makes me an expert necessarily, I just want you to know where I'm coming from.
Point 2
Religious belief is not a form of mental illness, any more than a belief that the moon landings were faked is a form of mental illness. Yes, I think anyone who believes in anything supernatural is wrong. But believing in wrong things does not define mental illness.
Point 3
Religious groups frequently employ techniques that arouse the emotions and suppress rational thinking. When a person is caught up in these techniques, they do not become "mentally ill", they are operating in a normal way in an abnormal situation. Mentally ill persons do the opposite: they operate abnormally in normal situations. The fact that religious leaders have learned how to manipulate people doesn't mean that they have the power to turn people insane.
Point 4
The whole "religious people are all crazy" shtick does not, I claim, represent the majority opinion of the atheist community. This is the Atheist Asshole Position, and most atheists would disavow it I imagine. In fact, I suspect that some people who make these kinds of pronouncements are provocateurs trying to make atheists look bad.
Point 5
If you are religious in the sense of believing in supernatural beings or forces, I think you're wrong. In many cases, I think your wrong beliefs hold back human progress. In a few cases, I think your beliefs inspire real harm. But I don't think you're mentally ill.
Final Point
A mental illness is a serious condition that requires professional help from a qualified mental health practitioner. To use it as an insult is to insult all those who struggle with the thoughts and emotions that cause suffering.
EDIT:
Thanks for the rec!!
EDIT #2:
I wanted to explain why I mentioned Point #5. I think the objects of religious faith, as well as the act of religious faith itself, are all worthy of public debate. I think it is healthy for a society to discuss beliefs and to criticize bad thinking and faulty logic. But by saying that religious belief is a form of mental illness, it takes it out of the realm of competing claims and makes it about something else entirely. In other words, invoking mental illness is an insulting red herring that closes down productive discussion.