There is no doubt that the flash fired. The relative exposure of the subjects, the hot spots reflecting off of the subjects, the lack of and position of shadows on the subjects' bodies and faces, the position and hard edges of the subjects' shadows on the wall all indicate that the flash was fired. The photo was taken in the portrait, rather than landscape, orientation, with the flash on the right (not the normal way of rotating a camera, but, then again, not all photopass photographers are professionals).
What happened here is that flash was used in combination with a slow shutter speed. I use this technique intentionally all the time; it's called dragging the shutter. If you look at the picture, it's not totally blurry, yet it's not totally sharp, either. It's like a combination of a sharp image and a blurred image. That's because the flash froze the action (made the image sharp), but after the burst of light was gone, the shutter remained open for a split second longer. While the shutter remained open, any motion on the part of the photographer or the subjects was captured in the same image as blur. You may have all seen a photograph of a car in sharp focus with red streaks from taillights behind it. That's an example of dragging the shutter (with rear curtain). In your case, the PhotoPass photographer may have accidentally switched the mode or shutter speed. Many PhotoPass photographers only use the camera on automatic or whatever settings they were told to use...since they don't know anything about lighting, aperture, shutter speed, or ISO, they don't know how to fix the problem when they accidentally change a setting. Do you have an original image, not resized or altered, so we can see the EXIF data in the document properties? If so, it should reveal a slow shutter speed.
As for all the talk about what shutter speed are necessary to eliminate blur, there is no magic number. It depends on the speed of the subject, the direction the subject is moving in relation to the camera, the motion of the camera/photographer, and the focal length of the lens.