That was the wrong ruling for batting out of order in high school softball (and most other rule sets). If properly appealed, the batter who should have batted is the one called out. The at-bat of the improper batter who actually batted is negated. The next proper batter is the one whose name appears in the line-up following the batter who was called out (even if it is the same improper batter that just batted). One out on this play would be the correct ruling.
As with many other rules, this rule is not interpreted exactly the same for all rule sets! For instance, under ASA rules the out against the improper batter would stand AND the batter who should have batted would also be called out. The next batter is the one whose name follows the batter who should have batted in the line-up. If that is the player who just batted out of turn and was put out, since her out stands she is skipped and the batter following her is due up. So, if you're playing an ASA game, two outs would be the correct ruling.
In both rule sets, any outs made against runners already on base stand. So, you could wind up with multiple outs after a batting out of order appeal in high school ball, but not on this particular play because no other runners were put out.
It can be, in itself, a confusing rule, and it's made even more confusing by the fact that different sanctioning bodies might enforce it differently.
On the "arousal" thing...IF (big "IF" here) it were true, I can't image that the umpire would be allowed to continue in any capacity involving young players.
Besides, how would anybody know if the guy was "aroused"? I mean, did somebody, like, check the guy? And if they did, what if he was wearing a cup? Enquiring minds want to know!
On the other umpire...after working a game this past weekend with a plate umpire that was doing his first game ever (what a nightmare), I'll take an experienced official that knows what he's doing any day, even if he is less mobile, over a guy that is just totally overmatched and lost!