I truly am sorry for what you've gone through. I so agree with you that this has been blown out of proportion. But the silver lining is the wealth of lessons your daughter can learn from this single incident. What an excellent conversation starter to teach her boundaries, inappropriate touching, human nature, how to conduct yourself under duress, choices and decision making, feeling left out and as someone else has mentioned peer pressure (do I want to do this or just fit in) so many things! We're talkers in this house, we talk things to death here and we'd be discussing all aspects of this situation for months to come.
I honestly believe that the hope for humanity is our children. I would LOVE to be able to raise my children in a world where they don't see, hear, or experience things before they are ready. This disfunctional family has given you the opportunity to discuss this all and your daughter will relate because this is her life experience. While this is disturbing, comparitively it is rather minor.
Don't get me wrong, I'd like to take this woman and shake her and say "Look what you're teaching your daughter!!!!"