War makes people do some pretty awful things. I don't think anyone would be surprised by the Death Eaters massacring families en masse as a threat to their opponents - in fact, Quirrell explicitly confirms that they did, in his post-Battle of Zabini speech.

If you're the commander of the forces of the light, and you know that someone is knocking your people out of the war with tactics that you have no plausible way to stop directly(too many innocents to secure, etc.), then you're faced with a problem that you must address for the war to continue, and one that you must address indirectly at that. Honestly, I can think of no better solution to that problem than...well, burning a completely innocent woman alive as a terror tactic. Maybe two or three, if the lesson didn't take. Voldemort won't care, but his people will, and it should at a minimum reduce the numbers of such attacks. It's not fairytale logic of the sort Dumbledore prefers, but we know that he can be a hardass at need, and this seems like a need.

These are the tradeoffs you get when lives are the playing pieces of your game and you can't walk away from the board. War sucks.