You remember correctly. There's a discussion of the design process of the Battle Flag at the start of The Confederate Battle Flag: America's Most Embattled Emblem by John M. Coski.

The flag was designed by William Porcher Miles, a Confederate Congressman from South Carolina and the chair of the committee responsible for choosing national symbols. He was against the original Stars and Bars flag because he thought it looked too much like the Union flag. Instead, he wanted one based on the so-called South Carolina Sovereignty Flag, which had an upright cross. You can see one of the more prominent designs of this type here.

After the upright cross proposal was publicized, a man named Charles H. Moise wrote a letter to the committee on behalf of the Jewish residents of Charleston, asking them not to use an overtly religious symbol on the national flag. Some Protestant sects apparently had a problem with the idea as well. Miles drew up a new design with a diagonal cross, his reasoning being that it "did not stand out so conspicuously as if the cross had been placed upright thus" and that the saltire was more of a heraldic symbol than a religious one. Miles eventually passed on his design to P. G. T. Beauregard, who pushed to have it adopted as the Battle Flag.

There were tons of proposals for the Confederate flag, and they ranged from the traditional to the bizarre. My personal favourite is [this one] (http://flaglog.com/post/70577529683/confederate-states-of-america-proposed-1861), which seems to have some kind of crazy Eye of Providence comet on it.