We've not seen in-class differentiation done well yet. I hear it exists. I would ask a lot of questions about how they manage differentiation in the current class where first graders are working at a third grade level. Are they working independently? Do they have some daily instruction? Do they still have to do the first grade and second grade work each day?

Also, as this develops, it can be helpful if everyone agrees when you (parents and teachers) will meet in the fall to discuss how either solution is working.