It doesn't matter what the teacher believes...these are not her children..the parents have the right to teach their kids their beliefs without the teachers deciding that they know best!
As a music teacher it was her job to teach music, period. Anything else was overstepping her authority.
My relating of our telling the girls about Santa was directed toward parents who indulge in the practice of Santa Claus but then worry about "lying" to their kids, etc. We did the "Santa Thing" until the girls were nearly 11. We enlisted the help of our neighbors who had no children of their own to put our gifts out for us when we visited one of the grandparents. They loved doing it, and still played "Santa" even after they moved to a different community. The point of my story is that when the time comes for a child to leave the world of magic behind, that it need not disappoint.