I've looked for the latest on this, and today the Ministry of Justice, the only organisation with the power to grant an exhumation licence, said there was “no way” he would be moved.
And a leading Muslim has made a statement.
" Dr Sheik Howjat Ramzy, Director of the Oxford Islamic Information Centre and an adviser to the Muslim Council of BritMain, said: "There is nothing in the Koran which says that you have to be buried separately, there are some traditions that in the time of the Prophet it was good to be separated.
Graves] are separated in some Muslim countries but Islamic jurisprudence is different from one country to another and in this country it is allowed."
Sanity has prevailed.
http://www.telegraph.co.uk/news/religion/11406710/Grave-of-Catholic-Shadrack-Smith-will-not-be-exhumed-family-told-in-row-over-Muslim-burial-plot-next-door.html