Right, that's the catch. I'd be in support of the teacher as well (I usually am, I realize how awful some parents are). A qualified teacher shouldn't do that to a 5 year old, though. The truth is somewhere in the middle.
My problem with lawsuits is that it's not an all-or-nothing proposition. Juries feel sorry for people.
Dad: "My Kid was embarrassed. I want eight million!"
Juror: "Eight million is a bit high... but they DESERVE something for their PAIN, how's two sound?"
Dad: "I'll take it."