Can you print out this forum thread (including your post and all the responses) and give it to your principal?
You are not overreacting. She is being abusive and a bully. She is also in a position of authority and your DS is therefore not "allowed" to respond in a way that would be appropriately defend himself. He's really stuck in a hard spot.
I agree with Minnie. If it were my DS I would not think it out of line to pull him from her class. I realize not everyone is in a position/able to do this for a number of reasons but please know you are NOT overreacting.