To OP. Some thought on this as a DM.
When we first came to 4e, we did so from a 3e background (albeit some years in-between). My first inclination was as your current DM is doing. "Rogues can backstab undead! Rubbish!". But you really have to embrace the fact that 4e is NOT 3e, in fact, its the greatest divergence from established D&D standards that ever there was. To say undead should be immune to sneak attack is imposing a 3e idea into a 4e context.
Fact is, the way the rogue was balanced into 3e is entirely different to how they are balanced into 4e. In 3e, backstab damage was ENORMOUS yet only worked on certain targets. In 4e, it is far more humble (about 3d6 at 20 instead of 10d6, and only one per turn) yet is applicable to all targets. If you make it not effect sub-types, that means its both humble AND only effects certain types. That would make the rogue the single most ineffectual class in the entire game. It is a poor decision at every level.
A few things to point out to your DM about the rogue. Our party has one, in fact the player has played it through, all the way from level 1 to level 15! Its a cunning sneak and can dish some hideous damage, however...
* Often, to get CA, the character can get "caught out" trying to flank enemies. Fact is, they have to commit to the battle to do any good...standing back is infrequently helpful
* Poor(ish) AC and Moderate hit points. Not great features for a character that is expected to be in the heart of combat
* Craptacular number of healing surges. If your DM plays it right and stops the party from extended rests after every encounter (groan) healing surges are vital. Often our rogue has ended up out of healing surges and going down hard.
There is a balance here. Trust 4e, it is a system designed from the ground up to mechanically work in a way it never did in previous editions. You can make small divergences (everyone houserules) and that is fine, but this ultra nerf is unfathomable.
In the end, your DM's only argument for such a monumental change is "Cause I dont think it should", and that just isnt good enough.