Too bad there's not a clip available to show the Piss Christ business. It's established early on in the episode that David is taking some sort of medication that makes his urine flow excessively forceful. There's a splashing problem. In a later scene, he needs to go to the bathroom and there's a picture of Jesus hanging next to the toilet. Jesus's eyes look to the side and down, and that seems like a setup for a joke about the way men don't look at each other's equipment when they are next to each other at the urinals.
(Digression: I know this about men not from personal observation but from David Foster Wallace, from "Big Red Son": "A strange and traumatic experience which [I] will not even try to describe consists of standing at a men's room urinal between professional woodmen Alex Sanders and Dave Hardman. Suffice it to say that the urge to look over/down at the penises is powerful and the motives behind this urge so complex as to cause anuresis (which in turn ups* the trauma). Be informed that male porn stars create around themselves the exact same opaque affective privacy-bubble that all men at urinals everywhere create.")
But Larry does not give Jesus a dirty look or flip the Jesus picture around. We don't hear him bitching later about how he didn't try to get a look at Jesus's genitals. (I hope I'm not offending anyone by referring to that aspect of the incarnation.) What happens is that Larry's forceful urine propels a single droplet onto Jesus's face, right under the eye, and later, the women of the household jump to the conclusion that the painting has miraculously shed a tear. Larry never "urinates on" the painting directly or intentionally. It's an accidental splash, and he's horrified at it, but unwilling to confess to it, at least not immediately, even to stop the women from making a big public show out of their their miracle painting.
This was all wonderful satire. The nonreligious man is trying not to offend, but his body makes a mistake, and he's too cowardly to confess. The religious women are too gullible, grasping after a miracle and the fame it seems to offer them. I say: Bravo, Larry David, comic genius.
In honor of David Foster Wallace, a footnote:
* Did he mean to write "turn ups"... turnips, and if so, what was he implying about himself? Here's a photograph to aid your contemplation.