I bring progress from the thread on this on the snopes message board. Several people added info but pride of place probably goes to poster Bonnie who, as usual, has dug up a very impressive set of cites and makes a compelling case for the story being true, really. Or at least more plausible than I thought previously.
Some key things discovered:
[ul]
[li]The story was reported as early as 1958 in Time Magazine and widely reported in 1959 in, amongst other papers, The Washington Post.[/li][li]German Measles quarantining was a regular occurrence in the 1940s and indeed it was something of a raging epidemic.[/li][/ul]
The link to the thread contains cites for the above and much more.