You're not wrong By Sue W.

The fact that he was not in your school for the time from the end of kindergarten until December of 1st grade really changes the equation. You should not be blamed for what happened in between the time you worked with him and the time he returned to your school. There is really no way of knowing what his learning experiences were during that time. Your job was to do your best when you had him and to determine if he appeared ready to go on at that time. You said he was far behind and made good progress. You based your judgement on the progress he did make with you. That is the most that can be expected of any teacher.
None of us have a crystal ball to predict all successes and failures ahead of our students.

Now, even though we agree your co-worker's views are faulty in this case, you need to forgive her that lapse in common sense, just consider the source. I would just let it drop and try to maintain a positive working relationship.