I would give serious thought to leaving the school or at least asking for separation from the other child and perhaps the teacher.
But my first order of business would be to book a meeting with the headmaster / director (whatever the name) and explain the situation. Do this as soon as possible. The teacher is not doing her job adequately by a long shot! She is failing to protect your son, completely misleading you about your child's development, and not teaching the boy who is hitting appropriate behaviour.
As a side note, I am reminded when my first DS was almost 3... I got a call from his Montessori pre-school saying another child (nearly 4) had bit him. At pickup I learned the other child was sent home for the day as a result. They wanted to impress upon him this kind of behaviour (behaviour he knew was unacceptable) would not be tolerated.
