There is a lot to be said for letting children sort out this sort of thing, but the final call needs to come down to you as a parent - do you think your child was getting upset by it, or treating it as banter.
If it upset my child I would have called it out then and there - the same way I would if it were my own children making fun of another, pointing out to them that it wasn't a nice thing to do.
Then the parents would either back you up, or have to take an opposing standpoint. I can't think of any of my children's friend's parents doing this, more likely would be they either weren't paying attention or just leaving it up to the kids to sort out.
That's-a not-a very niceshould be said in a Mario voice? – Konerak Nov 16 '11 at 12:11