There's a long "tradition" of musicians --especially white British musicians --treating black American music like a freely available natural resource, something that doesn't need to be credited, and that becomes "your" creation with only the most minor modifications. In this case, however, it seems Ms. Yarbrough was credited as co-writer and presumably given her fair share of royalties. Given the popularity of Fatboy Slim's version, perhaps that was enough for her. In addition, she experienced a bit of a career renaissance in the wake of the song, likely from those who did take the time to trace down the original track.
In all fairness to Fatboy Slim, the Yarbrough sample, although prominent, is only a small part of the original song, and his usage of it creates a song quite different in feel, structure and impact to the original. Creating a new song through sampling does continue to be a moral, legal and creative gray area for many people, but it is generally accepted that sampling legitimately creates a new song, as long as the original artists are credited and compensated appropriately.
A lot of where the line gets drawn in practice depends on the litigiousness of the allegedly infringed party. The Rolling Stones, in particular, are known for having a particularly aggressive and successful legal team protecting every possible usage of their music, and famously won 100% of the royalties from the song "Bittersweet Symphony," which most people would have characterized as an original composition. In that case, as in many others where copyright infringement is aggressively pursued, it is often at the initiation of a publishing company or a management team, rather than directly by the artists themselves. https://en.wikipedia.org/wiki/Legal_issues_surrounding_music_sampling