Congratulations to hubby!
Personally, when a day care provider doesn't know that a three month doesn't sit or crawl yet, sounds to me like she knows zilcho about babies. (that, plus the nine kids AND the cats chewing the bottles --- i would've grabbed my kid and gone).
Yes, you should report. this sounds like an unsafe situation for whatever children she is watching. the not changing the diaper - yes she should have, but maybe the child was sleeping and she preferred not to wake him. (unless your child is overprone to rashes, it would be uncomfortable for him, but since you say he was sleeping I can assume that it wasn't *that* uncomfortable). The cold milk wouldn't have bothered me as much either. but the fact that she doesn't seem to know anything about baby development (i mean seriously - these are basics that I wouldn't expect *everyone* to know but I would expect a childcare giver to know!), the nine kids and the cats roaming around unsupervised, that would warrant a report to whomever.