Oh my gosh...what a tough one...I bet you were so upset on the inside and had to hold a lot back.
For me, I would rarely ever reprimand someone's kids or my relatives etcetera. BUT, the one
absolute exception is if they mistreated an animal. I would address it immediately w/ the child, in that moment, and later talk to the parents.
I had to do something similar w/ one of my neices when she was about 3 or 4. She handled Wylie incorrectly..in a way that could've really hurt him...so, I stopped her, took Wylie gently away, and gently tried to explain my concerns...and then I showed her how to properly handle him. Of course, she BURST into tears and I felt like a jerk...but, it was still the right thing to do. Even when uber gentle, the little kidlets can just explode into tears bc they feel so bad about doing something "wrong"...and like they're in trouble.
She recovered in about 15 seconds (as 3-4 yrs olds sometimes do), and then she was totally fine...and handled Wylie better, and she felt proud that she was doing it the "right" way....so then, she kept picking him up over and over using the new method bc she was so proud

.
All's well that ends well.