School problems should be solved (or given consequences) at school. I wouldn't punish him at home for this kind of low-level "infraction." If the teacher wants to fuss about this, she will, regardless of what you do.
However, the teacher sounds more than a little rigid. Do you have achievement test scores that would support acceleration of any kind? What is your school's/district's policy? My feeling is that the teacher's attitude isn't going to do your DS any good, regardless of how you choose to resolve this. One has to approach these things collaboratively, but this teacher doesn't sound too willing...
DeeDee
