First of all, my son is dylexic, 10, and struggles with disgraphia, bad handwriting, as well. I would become unglued. There are several serious issues that are being breached.
#1 Whether or not your child has an IEP, Individualized Education Program, within this school district there is a violation of privacy here. (The IEP is a federal law, and every state public schools needs to unhold this.) Nobody other than the teacher or a representative from the school, para, etc. should be grading your son's papers. That's why many schools no longer trade papers and have students grading them. This was common in the past.
#2. Why is this person allowed to interrupt the class, period? Why is she singling out kids? That is a form of bullying or harrassment from an adult. She's in a position of power, being an adult, and embarrassing/humiliating a person with a "disability".
#3. I would have a talk with the teacher and an administrator present about this situation. If it's a public school, she's allowed to be there. She's not allowed to interrupt the learning time or treat people the way that she is.
#4. You may want to talk to the teacher and administrator. If your son is enrolled full time with the school district the school can make accomodations for testing your son. They can allow extra time, give him a computer to use to take the test, have him take the test orally. Basically, they can allow many things to facilitate his learning process.
It sounds as if you have a weak teacher who doesn't want to step on toes. That is why I would have the administrator there. I would ensure that this child's needs are met. We know our son's are smart. We just have to find the key to unlock the method that allows them to be the most successful. You need to be your son's voice and advocate for him, even if he is in high school. Again this is should be totally confidential, so as not to embarrass him any further.
From what I've read and from the experience with advocating for my son, I know how closely tied the self confidence level and success are intertwined. It's hard enough with peer pressure, you certainly don't need an "adult" doing damage.
I feel for you, and hope you take your anger to the next level. This really is a breach and should be taken care of swiftly.