I think every parent has the right to choose for themselves, and what's right for your daughter is 1. up to you, and 2. not what's necessarily right for any other kid.
I do think unless you're abusing a kid or letting the kid run wild (which you very kindly WEREN'T) or doing something that might lead to your child getting hurt (letting them stand up in the cart or something) it's nobody's business and the woman was out of line to comment.
I also think the whole "leash" thing has been blown out of proportion. Sure you use a leash on a dog, but I hardly think a little kid is going to think "my mommy puts a leash on my just like a doggy, she must think I'm an animal" which I think is where people get pissed - they think it's demeaning or something, a metaphorical leap that a kid is not likely to make. All the kid thinks is "want toy! want toy! want toy! oof, can't go any further" and if they do make the "doggy" connection, they more than likely think it's fun and pretend, just like your daughter did.
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"If ten million people believe a foolish thing, it is still a foolish thing."
- Anatole France
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