What would you do? Supervisor reluctant to work with employee who has 'alternative lifestyle'

Periodically, we present a real-life workplace problem and ask three HR managers to provide a solution. This week’s problem: A supervisor expresses his objections to working with a gay employee.
The scenario:
“Cindy, we need to talk.” Supervisor Dan Winters sat down in the chair in front of the HR manager’s desk. “There’s an issue we need to discuss – now.”
“What’s the problem, Dan?”  Cindy asked.
“I think you know. The subject is the employee who just transferred to my department,” said Dan.
“John Costello,” Cindy nodded. “What about him?”
A question of religion
“Will you stop pretending you don’t know what I’m talking about?” Dan was getting steamed.
“I’m afraid I don’t,” Cindy said. “Why don’t you just come out and tell me what’s on your mind?”
“All right, all right,” Dan conceded.  “The problem is that John Costello is gay.”
“Why would that be any concern of yours?” Cindy asked. “He’s a skilled worker, your head count was down, and we moved him to a position where we felt  he could best help the company. What’s the problem?”
“You know – pretty much everyone around here knows – I’m a religious man. And my religion says that homosexuals are sinners. Do you really expect me to work  with somebody whose ‘alternative’ lifestyle is abhorrent to me?” Dan leaned forward to emphasize the question.
“If he’s not transferred out, I’m quitting.”
If you were Cindy, what would you do or say next?
Bill Williams, VP of HR, Blossburg, PA
What Bill would do: If it wouldn’t hurt production, I’d separate Dan and John into different departments. If, for some reason, it wasn’t feasible to separate them, I’d tell Dan he’d have to abide by the law and work with John.
Reason: We want to avoid lawsuits at all costs, so separating the workers would be the best option as long as production wouldn’t take a hit. No matter what, additional diversity training would be mandatory for Dan.

Joanne Wegener, HR manager, Bellevue, WA
What Joanne would do: I’d tell Dan that by law, we can’t grant his request to transfer John. Even if Dan’s been with us for a long time, I’d tell him he’ll have to find a way to co-exist with John. If he still thinks he can’t do that, he’ll have to take his services elsewhere.
Reason: We don’t look at sexual orientation or religion as a factor in transferring, promoting or firing employees. So unless John’s got a bona fide performance issue, we’re not going to transfer him.
Joyce Vondran, HR manager, Troy, AL
What Joyce would do: If Dan insisted his value system made working with John impossible, I’d temporarily reassign him, not John, to another department. I’d allow Dan to return to his old post and work with John only if Dan learned to accept our policy on such matters during his reassignment.
Reason: I wouldn’t make a quick  decision on a touchy matter like this. I
feel at least a temporary move for Dan would be best. I wouldn’t transfer John because I’d be afraid of a discrimination claim. But I’d also not want to let Dan go because he might turn around and sue us for religious discrimination.