In a PBS interview with David Frost, Rushdie was asked whether he believed in god and replied "I do not need the idea of God to explain the world I live in."
"God, Satan, Paradise, and Hell all vanished one day in my fifteenth year, when I quite abruptly lost my faith. ..and afterwards, to prove my new-found atheism, I bought myself a rather tasteless ham sandwich, and so partook for the first time of the forbidden flesh of the swine. No thunderbolt arrived to strike me down. [...] From that day to this I have thought of myself as a wholly secular person." -- from In God We Trust (1985)
Suggesting that Rushdie is no longer godless, a reader reports of a 1997 CNN story which said that Rushdie had converted to Islam.
But more recent info on Mr. Rushdie is trickling in via a recent discussion on UseNet the editor came across: on February 13, 1998, Rushdie appeared on the BBC2 television program "Newsnight" and identified himself as an atheist. Apparently he has been attempting to establish himself as a 'secular Muslim' to maintain his cultural identity separate from a religious one. This would be along the same lines that an atheist Jew will refer to himself as a 'secular Jew'.