Actually, I've just checked the next couple chapters, and it does seem like the failed crusade against the Forest led to a major war that did end up setting everything back and splintering the Church. At least it sounds that way to me. Huh. I didn't remember that at all. (The chapter where Damien gets the flask with the sunlight.)

(Also, I don't think we can properly speak of the Church before Gerald, anyway - he was the one who invented the project that makes it what it is, after all. And Damien's remark certainly talks about the splintering of that project, the "great dream".)