This is really horrifying.
I know that ghost stories and the like can be a type of fun, but in our day and age, we also have very graphic images that go with these stories. In the past, it was just a story, and you made up your own images in your head. Or maybe someone would bring in a prop of sorts and say, "This is the backpack that little Charlie was carrying when he met the ghost." But when you see graphic images that are meant to look real (in a video, which it sounds like was the case here), you form a visual image in your brain as a memory that you cannot get rid of. For instance, how many of us can simply block out the pictures of 9/11 that we saw on the TV? We can't. They're burned into our memory. And real-life violence is enough without adding this stuff to it, imo.
I think too there is a problem here with authority. Yes, if Mom and Dad decide that some kind of violent movie is OK to watch, there is kind of a safety net where Mom and Dad are watching with the kids, and they can discuss it later. But in this case, the babysitter just shows up and shows them this movie and then leaves. It doesn't sound to me like this was a psychologically healthy way to view this video. I hope that makes sense. I'm kind of having a hard time explaining what I mean.
I read the Witches book that Irene mentioned, years ago. I loved it! But there was no sexual content, as far as I recall, and it was illustrated in a line-drawing way: no graphic violence was meant to appear real. And there was humor interspersed too, which helps the child put the whole story into context as fiction. (For example, I remember that children smelled stinky to witches and that children weren't supposed to bathe, because that made them even smellier to the witches!)
I can only assume that this babysitter didn't know about the recent attempted murder surrounding the Slenderman story, or she wouldn't have done this.