In terms of where they were - I do think the sentence was fair - for the Sudan. I think the law is unjust, unreasonable and dumb - but given that it's there, and that obviously this teacher didn't mean to break it, the minimum punishment is appropriate.
Although... it's worth mentioning that there are indeed Christian groups that send teachers out to teach children - and incidentally work to convert them (I have a relative who works for one of them - big business). So, the paranoia over there is not completely unfounded. But I don't think they do so by naming teddy bears.
The name Muhammed is common there. The teacher's defense lawyer (a local Sudanese muslim defense lawyer, by the way) made a good point - he said that if a woman names her baby boy Muhammed, and the boy grows up to be a thief, obviously you don't claim that she just called the prophet a thief. It was a good argument - apparently didn't get her completely off - but no lashes, 10 days of jail time (time served for the other 5) - not too bad, given the climate.