The regualtions are pretty clear where as the dog should have been in the Cargo Hold or not from the beginning. The FA made the wrong call here, and I doubt that she didn't know there was a dog in the bag.
BUT, it's the owners responsibility to know the breed of the dog and how it behaves and reacts to certain situations. Ultimately, if there was a slightest chance of this going wrong and the dog getting hurt in any way I personally would never take my dog on the flight in the first place. You have a responsibility to feed the dog at home, to take care of it needs and so on - why does this not apply here? The owner is always responisble in the end. If not for the regulations, then atleast for the dogs health and safety...