You're right to be angry. The school has clearly failed your sister. Their harsh communication and exclusionary practices are inappropriate for 10-year-olds. This kind of treatment can crush a child's enthusiasm and self-esteem.
Keep supporting your sister emotionally and reminding her that the school's failings aren't her fault; help her practice for the orchestra at home for example.
And as soon as the option for homeschooling becomes available take it because the indoctrination system needs to crash down