How would you say that this story fits the definition of postmodernism?
The enotes discussion of postmodernism (found here http://www.enotes.com/postmodernism/) indicates that several things are key in identifying postmodernism " the mixing, the disintegration, and the instability of identities."
We can see all of these in this story.
In a traditional society, with clearly defined boundaries, only one tradition would govern important ceremonial events like the treatment of a dead body. In this story, two different traditions come together.
The water is the single most postmodern detail here. In the priest's mind, it is holy water; in the Native traditions, it is water for the spirit to use in the next world. Depending on the frame through which one views things, it is completely different, and the priest has to negotiate both frames.