I believe we can give you or your friend better advice through a different means than this public forum, for the questions here may require several exchanges of information and your friend, if forced to take on this responsibility, is probably going to need some one-on-one mentoring. There ARE legal issues at stake, the rights of the parents of the child, and of course the rights of the school involved. We cannot offer any advice that could be used in the legal struggle, but we can send your friend information about the care of type 1 diabetes, information about what to look for if the child does indeed have a hypoglycemic episode, etc. I am going to send you to the Juvenile Diabetes Research Foundation (it actually would be best if your friend, the person who may actually be put in the position of caring for this child, contacts this foundation for information) website: www.jdrf.org/
Once she gets to this site's home page, she should click on this link: "Online Diabetes Support Team (ODST)". She will be taken to a page where she can request one-on-one communication. She should tell us exactly what you told us here, and she will be matched up probably with one of the JDRF staffers who can send her information about type 1 diabetes. We do also have people volunteering with us who are knowlegable about the legal issues of the rights of both sides of this issue. I do not know if the staffers will feel that this is a proper topic to discuss (it really IS between the lawyers to decide whether the child's parents have the right to insist that the child be cared for at the preschool), but we certainly can give your friend lots of information about caring for toddlers with type 1 diabetes if this child does end up in her classroom.
By the way, she should challenge the suggestion that if the child's blood sugar drops, the child should be given meat and cheese and no sugar. This is contrary to anything in my experience with diabetes. She may have misunderstood the parents' instructions on this issue. When a diabetic's sugar levels drop low, the diabetic needs the quickest possible carbohydrates for the quickest recovery. Orange juice is the most common "fix" to a hypoglycemic reaction, about a half a cup to a cup, depending on how low the glucose levels really are. Another drink that is a very quickly-digested carbohydrate is common Gatorade, which is designed for quick digestion.