President Bush has received much flak for this. It has even been suggested that by saying this, Bush made France an enemy and alienated many of our allies.
When I heard Bush say this, I heard it in context. I realized that he was talking of nation-states that, while they may not promote terrorism directly, harbor terrorist groups and refuse to give them up. He was speaking not of France, but of Afghanistan. The phrase was never meant to apply universally, but rather only in certain situations.
I hope this clears up some unnecessary strife between Bush-supporters and Bush-detractors.