She recoiled at the sight of Sarah's kissing John.
She recoiled at the sight of Sarah kissing John.
To my ear, they're both OK, but without "the sight of" in the first case. With "the sight of" I feel the rest of the sentence should depict a scene - either 'Sarah kissing John' or the strange-sounding (over-elaborate?) "Sarah's kissing of John" (the latter of which I wouldn't recommend!)