The "winter solstice" sign sponsored by the atheistic Freedom from Religion Foundation calls religion "myth and superstition that hardens hearts and enslaves minds."
An organizer at Sunday's rally, Steve Wilson, said outrage over the display was growing, and that it was offensive to people of all faiths.
"When it comes to disparaging my faith on public property, that's where I draw the line," Wilson said.
Three counter-protesters stood at the side of the rally, holding up signs that said, "Get Over It."
The sign went up Monday in the Capitol rotunda, alongside a "holiday" tree and a nativity scene.
It generated national debate after TV talk-show host Bill O'Reilly made it an issue on his program. Gov. Chris Gregoire's office reported receiving hundreds of calls, mostly to protest the state's decision to allow the sign to be displayed.
Gregoire and Republican Attorney General Rob McKenna have defended the atheists' right under the law to display their sign in the Capitol.
The state began granting broader access to religious displays a few years back, after a Jewish group added a Hanukkah menorah to the long-standing display of a massive evergreen Christmas tree - these days called a "holiday tree" - sponsored by the Association of Washington Business.
Organizers pleaded with Sunday's crowd to keep their messages positive, but there were still signs portraying Gregoire as a Grinch. Even scheduled speakers took political pot shots.
"You have led the State of Washington to be the armpit of America. And I'm afraid that our governor is the one adding the offensive odor to the armpit," said the Rev. Ken Hutcherson, a Christian preacher known in the region for his commentary on social issues.
Also on hand was a manger scene made from balloons. The wise men were missing, but the scene included an image of O'Reilly slugging Gregoire.
"He's knocking the sense of God into her," balloon artist Adam Lee told KING-TV.
The atheist sign was briefly stolen Friday, but was returned to the Capitol after somebody dropped it off at a Seattle radio station. It was restored to its display site, along with the added message, "Thou shalt not steal."
Washington State Patrol troopers were on duty at the rally site, but no problems were reported.