Don Corleone would have definitely known what a Muslim was. Sicily was occupied by Arabs centuries ago, and northern Italians disparagingly refer to Sicilians as "Arabs, not real Italians." The Don, a proud Sicilian, would have known this bit of history, and being highly moralistic would have looked on polygamy, which muslims practice as the act of infidels. I think the Don called him an infidel not because he was a Muslim, because Sollozzo was an Italian who took advantage of the Muslim practice of polygamy simply because it was expedient for him to do so.