Little kids do that stuff, so that part of it isn't necessarily a big deal. Still, if they're - like -three or four and your child is still only a year-old I'm not sure I'd like having my baby with older kids.
The other thing that occurs to me is this: Why is the babysitter "cooking or something" when she's got a few very young children to be watching, particulary your one-year-old?
What the little kids was natural and understandable for their age (most likely, although occasionally some kid pays a little more attention to that stuff than is normal); but I don't like the idea of the babysitter's needing to promise she'll "check on them every two minutes". In a preschool this kind of stuff doesn't generally go on because the children are in the presence of a preschool worker/teacher at all times.
I'm not even sure I like the idea of her doing time out for this particular thing. They weren't fighting. I'm not sure she shouldn't have just authoritatively announced, "No. We aren't having that kind of stuff going on here" and directed the children to a more wholesome activity.
Any older children and any baby/toddler don't necessarily belong together in certain circumstances.
Any children may come up with this kind of idea - yours may too in another three years or so.
There's something about the set-up you have that doesn't quite sit well with me, but for no reason other than - maybe - the mix of kids or the mix of kids combined with the "cooking" thing. Preschool children often bring easy meals, and the children all help set up placemats and set the table while an adult may microwave a lunch. The babysitter shouldn't be cooking dinner for her own family while the children are there, and how much cooking should be involved with lunch for the children?
I don't blame her (necessarily) for the incident, but anyone who knows children and who takes seriously the idea that a babysitter has to watch the children of someone else, would have known not to let the opportunity arise for that type of incident.