It seems like something an atheist made up to be funny.
I did some googling, and it turns out that there are several versions of the story. The version which has him popping his head up quotes him as saying, "There is no such great wonder in death, nor is Hell or Heaven what it has been described.”
In other words, he says that heaven and hell are beyond anything that has been described. Someone just misinterpreted the quote to make St. Otteran seem atheistic.
St. Otteran's biographer and contemporary Adamnan doesn't even relate this event, so it's most likely a pious myth that develop long after St. Otteran's death.