I'm all for free speech - in appropriate settings.
School is a workplace for children and I would expect that the atmosphere would be moderated much like a place of business. Therefore, restricting slogans and other public expression is reasonable within a school setting. The word "dam" is obviously a play on the word "damn", which is considered vulgar in most every businesslike workplace (not necessarily the dock at the shipyard), so I have no problem with the decision in this case.
Now, if she had been arrested on the street, I would draw a different conclusion.