And my basic question is about whether it should be lawful.
The courts have determined that it is lawful - but being lawful doesn't mean that all schools must ban worship. All it means is that schools have discretion. It is also lawful to allow worship.
The way in which you prevent discretionary decision-making by schools is to require something via statutory edict - a 'must' rather than a 'should' in school governance terms.
NS - do you think that schools 'must' be required, by law, to allow all pupils to engage in religious worship on school premises during the school day. If so, that seems to be exceptionally centralising and doesn't really fit with the notion of freedom. If not then we are back into the world of discretionary decision making - if not required by law, someone will need to make the decision as to whether pupils 'should' or 'should not' be allowed to engage in religious worship on school premises during the school day.
And regardless, for most schools this will be a more nuanced decision again - for example not allowing it during certain times (e.g. during lesson times) but permitting it at other times, and perhaps requiring the activity to take place in certain designated places in the school (e.g. not allow worshipping pupils to disrupt other activities that pupils are engaging in during break time).
Realistically the law (or 'society') can only provide, at best, a high level framework (unless it provides a blanket ban or a blanket requirement) - it simply cannot deal with the complex and nuanced decision making required to put a basic principle into practical action on the ground.