A totally manufactured "controversy". Sure, he is not fringe figure -- but his views are not fringe views, either, even if they were expressed somewhat indelicately. He is NOT blaming the holocaust victims of anything. On the contrary: he is trying to explain why obviously innocent people, children and babies and devout religious folks included, suffered this way.
Ever since the holocaust many Jewish believers asked themselves how such a thing can happen if there is a God. To those who did not become atheist, some solution must be found. Traditionally, suffering in Judaism is seen as punishment for the sins of the sufferer. But since it is obvious that the sins of the victims, whatever those sins were, couldn't possibly SUCH a punishment, other excuses need to be found. One of those solutions is the belief of sins in a past life are repaid in this.
It is the solution to the "why bad things happen to good people" riddle of many religions, and many religious people. There is nothing theologically extreme here at all, except perhaps, to some, the realization that some Jews accept reincarnation. Well, welcome to the club -- this belief is at least 1500 or so years old in Judaism.
Yes, Judaism is very unclear and contraditory about what next life, if any, there is. During the biblical times there was no heaven or hell, only a vaguely-defined sheol -- roughly, the world of the dead. The belief in heaven and hell came later, during the Babylonian exile. It now exists simultaneously in Judaism with the belief in reincarnation, and with the belief in the eventualy ressurection of the dead -- all three obviously contradictory with the other two (and all three contradictory with the original biblical view).
But I repeat: while this might surprise some readers, given this common belief in reincarnation (at least for some people), what the Rabbi said is theologically orthodox and not at all surprising.