When we were very little, both my brother and I came up with made up nicknames that we wanted our family to use. Mine was "DeeBeeDee." My brother's was "Scotty Watty Potty Do Do." No amount of dicussion could get him to change his mind. Since I got my choice of nicknames, my brother got his.
Maybe it's because my brother and I had more than one nickname, but I don't see why Prissy would stick forever. My brother's nickname certainly did not.
I don't recall any incidents of teasing. However, I am pretty sure my mother would have handled the bully directly.
My brother has not needed counseling. So, no, a child having a controversial nickname will not require "counseling for the rest of his life."
My nickname from my line sisters when I was pledging was Miss Priss. We keep in touch to this day; there is lots of affection. I can say that the nickname was never intended as an insult or intended to be homophobic.
The woman was out of line.