Given the school policy and Illinois law, I don't see how the principal could have handled it any other way. Or the janitor for that matter.
Given the fact that it actually turned out to be powdered sugar, I can say in hindsight that I wish it would have been handled differently.
I had a student who liked to push others out of line and push his weight around. I worked with his mom and dad and he had improved quite a bit and had done well in class too. But one day, his temper got the best of him and he got in a fight with a kid. He was brought back to me. I forbade him from going to music and said he had to write me a 2 page paper about fighting. He WROTE FOUR and some pretty good writing too--note we're talking about first graders here. I did tell him I would have to call his mom. I guess when he got home, he was just bauling and the whole story came out. She had to try to maintain a straight face pretty hard. She had him call his dad at work and he kept saying, "I'm so sorry dad, I'll never do it again." They did ground him too. She said she thought he had gone through enough and I agreed. It never did happen again and the kid thrived in my class, eventually reaching a 5th grade reading level.
These stories apply to only first graders I imagine. It also helps that I know where each of my students live and that I am well-acquainted with many of the parents. It also helps that I know they are good parents who will do something if there is a problem and not just blame me--they'll talk to me first.
So I probably don't think that anything I say applies here, but sometimes there are different ways to solve individual problems.