pba — Your complaint seems to say that the kids were given the message that the Torah does not require proper behavior, except in public. That indeed would be very poor Chinuch. I believe what we are trying to tell children is that they must be very careful to adhere to proper behavior as the Torah requires us the behave with Derech Eretz. If you do not live up to that in a public place where people clearly know you are frum Jews than you will be leading them to believe that the Torah does not require proper behavior. That is a Chillul Hashem (more in the colloquial use with regards to the concept of yehai shmai shamayim misaheiv. . .) in ADDITION to the obvious problem of lack of Derech Eretz.
This is similar to the way we teach that every word of L”H is many aveiros — are we saying that if it was “only” one aveira it would be ok? Obviously not, but it help psychologically to motivate one to be careful when the stakes are higher so to speak. Similarly the hope is that the added dimension of potential Chillul Hashem will help motivate students to behave in the way they should be behaving at all times.