I think the situation escalated in a way that the bus driver did not expect, and he didn't think through his approach in advance.
If you are going to ask a passenger to stop a disturbance, and they comply, then that should be the end of the matter.
Clearly the bus driver then changed tack, and made the issue not about the volume of the sound, but the content - and that opens an entire nest of vipers, as the scene shows clearly.
Can the driver put a passenger off his bus? Yes, but he would need to be very sure of his ground before doing so, to avoid an upheld complaint.
The evidence is there - the driver asked the passenger to stop his music, and the passenger complied. Things only escalated when the driver made it clear that he had an issue with the religious content of the music, and that is unacceptable because the driver does not get to choose the music his passengers wish to enjoy.
I would have stayed on the bus, and offered my contact details to the Muslim passenger and advised him of my available support and corroboration if he chose to take the matter further.