Certainly God allows this to happen, but He doesn't will it to happen. Otherwise, God would will evil.
This is the best, reasonably brief, treatment of the problem of evil that I've ever read.
The short answer is to look at the Cross. God, the Creator and Sustainer of the universe, humbled Himself, taking on human form, to suffer and die for our salvation. Why does God allow this baby to suffer? Why did He allow Himself to suffer?
If He doesn't, you certainly can't chalk such a catastrophic birth defect up to some human's free will.
In a sense we can, since Creation fell as mankind fell. (See the link above for a full treatment of this question).
A few moments ago, I responded to a post to me on this thread in which the person said (paraphrasing) that God lets such children be born to change the hearts of the adults to whom the child is born. In that scenario, God is willfully using an innocent newborn baby to teach living adults a lesson. In other words, God is using cruelty to somehow achieve good.
In your scenario, if someone with the power to change something -- evil, as you call it -- stands by and allows it to happen anyway, that is extraordinarily ugly. Putting it in human terms, supposed I am aware that someone is going to fly a commercial airliner into a plane filled with people just going about their daily lives. By going to the authorities and telling them what I know, I have the power to stop it. But I don't. That makes me not only evil, but culpable.
If I had such knowledge and did not act, even if my motives were to teach other people some kind of presumably worthwhile lesson, I would be responsible for the death, destruction and suffering which resulted.
If I as a mere weak, fallible mortal, am held to a higer standard which requires me to try to prevent such acts, why, then, am I told to hold God to a lesser standard?