I would need to see a picture of how the flags were hung. If they were hung higher than ours or in a manner that could be considered not just respectful to those other countries, but representing loyalty to them that supercedes loyalty to the US, than I say they did the right thing. However, it's still possible that the principal was just being an ass.
At my daughters old public school, they hung a bunch of flags from around the world for a multi-cultural fair. I don't even remember if the American flag was hung up. If it was hung up it was hung the same way as the other flags. The thing that bugged me was they kept the flags up after the multi-cultural fair.
Of course, this is just one of the things that irritated me about the schools, and this was one of the minor things. My daughters are at a private school this year.