Read the actual report instead of a radical right-wing opinion.
http://www.fas.org/irp/eprint/rightwing.pdf
The DHS didn't label the American Legion a hate group, that's an assertion by Malkin. The article you linked to is using quotes to mislead.
The DHS report did get a lot of flack from the American Legion who thought it was unfairly accusing returning veterans of being a risk. If you read the actual report the position isn't necessarily that veterans themselves are more likely to be radicals, but that the rightwing hate groups are more likely to see returning vets who may be having difficulty integrating back into society as recruitment targets.
While I think the DHS should have been more careful in its wording, there certianly is some truth to this statement and you do have Timmothy McVeigh as exibit A.
The DHS did issue an appology on the issue which I think is appropriate, but to say she should resign is pretty absurd.
-spence