I think it's totally inappropriate. I mean having your legs between her thighs is totally out-there, completely not okay under any circumstance, but it sounds like it might have been quite inappropriate earlier on. When a therapist exposes you to increasingly stressful situations with the goal of desensitizing you and helping you overcome your anxiety they need to keep checking in about your level of distress.

I think the idea is to push you just past your comfort zone but not into your panic zone. So if 1 is comfortable and 10 is freaking out they should be aiming for 4-6. I also think they should not be moving to the next challenge until you can cope quite well with the preceding one. So once you're truly managing having her chair 3 feet away, maybe she can try 2 feet away. She should never force you into full-on panic because at that point you are generally no longer able to use your skils to centre yourself and keep it together. Usually by 8 or 9 you're bolting from the room, totally dissociated or getting into a panic attack.

Another thing is that it sounds like you didn't feel respected. How are you supposed to trust someone who doesn't respect you, doesn't seem to be on your side and doesn't seem to care that you're incredibly distressed.