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Finny is a poor candidate for military service because he doesn't have any evil in him. Gene means that Finny could not harm anyone if he tried. Notice in their rivalry how Gene is able to harm Finny, but Finny is so good and trusting that he can't possibly fathom that someone, let alone a friend, would do such an evil thing.
Finny lacks the understanding of true evil that would be necessary to kill or harm others in war. The closest Finny comes to that is in athletics. Even there he insists that everyone participate. He even insists on switching sides to keep the competition going. That's why Gene tells Finny later that he wouldn't be any good in a war because when there was a break in the fighting, Finny would start talking to the Germans and pretty soon he'd organize a football game and soon everyone would be playing and they'd forget about what they were all fighting about in the first place.
Finny just doesn't have the capacity for evil to ever fight in any type of war.
Gene knows that Finny does not have the soldier's mentality; that is, he doesn't have enough malice within him to kill others on behalf of a cause. Finny's main concern is that everyone be treated equally, and he plays the part of the peacemaker within the story itself. War, obviously, is the opposite of peace, and therefore Finny would be a poor candidate for any type of military duty.
This is what Gene means when he states what he does about Phineas "(not being) any good in the war even if nothing had happened to your leg." It isn't intended as an insult; it's simply a statement of truth.
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