As much as I wouldn't want to have this conversation, I would say something. You said she already knows all the body parts and flashes them around...I wouldn't want my kids or one of my daycare kids to go back home and repeat or do some of the stuff she does with her dolls. As a parent, if my child came back from daycare and said something or played with her dolls like that, I would ask the daycare right away what is going on because I would know she picked it up from there and not at home.