Wow...I'm shocked at the multiple vehement responses here! I think the point in calling it a fall festival is to be more PC, and yes, it does sadden me sometimes too to know that we've come so far in at trying to accomodate everyone's issues that we seem to have lost everything...however...I stand strong in the fact that this issue is really about kids. Kids should not be punished for the choices their parents make. There are many groups/churches/religions out there that frown upon Halloween and I would hate to see this woman's child removed from the party b/c it has a Halloween theme. Additionally, there are so many families (in all schools and districts) that don't have a lot of money and their children may not be getting Halloween costumes. So, to change it to a Fall Festival and not allow costumes, to me, would be the right thing to do. There is not one child in that class, or any class, who should be excluded. Period. Yes, this is different than even my generation would have done things. And yes, I enjoyed and have fond memories of dressing up at school for the Halloween party, but if we want to teach our children acceptance and diversity, this is a change that needs to be made.
I think you should address the teacher and/or principal about it and tell them that you had a mother back out of volunteering b/c she wasn't comfortable with the theme. There are so many venues for kids to be able to wear costumes and do "Halloween" things, why should it be so wrong to celebrate the season during school time.
Finally, I think the point could be brought up that "Christmas" parties are probably not Christmas themed any more either. THey are probably winter themed, and again, I think this is the right move. In school it should be about celebrating seasons not trying to focus on one belief over the other. I do think Halloween can be discussed as a tradition that many people celebrate, nothing wrong with that, but other discussions should be had about other traditions and beliefs.