This must be one of the most evil sentiments ever expressed. Advocating killing innocents alone is the hallmark of terrorism. The remark was originally said after the killing of 100,000 people of the city of Beziers. The Christians doing the killing justified the slaughter of other Christians of Beziers with the above pharse.
Do you have an authoritative citation for this? By authoritative, I mean any actual scholarly work (refereed academic article, book authored by a degreed historian, etc.) that sets about estabilishing this phrase originating at that point in time. I sincerely doubt that this is the origin of the phrase: "Kill them all and let God sort them out." I am prepared to be further educated, but it does not ring true.