How to encourage students to seek alternate citations for an assignment?
A good way to think about this is to de-charge the religious aspect of the question by considering a parallel situation involving an equally dubious published paper with no religious aspects, such as this one.  What would you do if a student wanted to cite such a piece of nonsense as support for their claims in a paper?

Rather than simply prohibiting the citation, you can treat this as a teaching opportunity to talk about how to determine the credibility of a scientific paper.  It is, of course, certain that the paper that the student wishes to cite will fail any reasonable test, given the notoriety of the journal involved and its complete disconnect from the rest of the scientific literature.  This is also an excellent opportunity to talk about how in science publication is not the end, but the start of the real conversation.

Perhaps rather than immediately talking to the individual student, you can take a few minutes in class to talk about how to evaluate a paper and its place within the scientific community.  Compare a nice strong peer-reviewed paper to a lunatic one like that linked above, both of which are completely secular in nature.  Then explain that part of what students will be graded on in their assignment is their ability to evaluate references.  This gives you good grounds to warn the student that their citation is a problem without even having to bring religion into the picture, as well as teaching the whole class some valuable information.

Let the creationist citation fail on its scientific (lack of) merits, rather than making this an argument about authority and belief. The beauty of science is that, in the long run, authority and belief are simply irrelevant.  Eppur si muove.