So, if a kid had two broken arms would she send them back to pre-school? The teacher's reasoning/method is distorted; defying the school's placement tools? In addition to above suggestions, I would want to have an informal discussion with the special education coordinator at the school. That would at least establish the texture of things at the school to know where your fight lies.

DS8 has the same profile, but our school and teachers have consistently worked to remove barriers. Almost too much, in that we are now trying to get help for his handwriting.