What is the meaning of "all in the matter"?

Solution 1:

"All in the matter" is not an idiom in this case. It would mean the same if someone wrote

In the matter, the priest seems all, and the people nothing.

Just as the second clause is implied to parallel the first with the verb, "the people seem nothing", it is also implied that they "seem nothing in the matter."

That is in the service (which is the matter), the priest seems all important, and the people who form the congregation, of no importance.

The "less dignified or imposing" is a bit less grammatical. Normally, with "all" you would use the superlative "least." But it must mean that the Mass is the least impressive of all spectacles -- or possibly the actions of the congregation at Mass.