Sometimes it seems like adults are willing to humor kids with really outlandish fantasies, but if the fantasy is too close to reality, or strikes a nerve in the adult, then the adult feels the need to point out the difference. If another child in your DD's class went around saying she was a fairy princess, the assistant teacher would probably just say, "Oh really?" and go about her business, rather than say, "You know fairies aren't real, right? It's impossible for you to be a fairy princess, you're just pretending to be one." But for some reason it's making her uncomfortable for your DD to talk about this doll as though she's real, so she feels the need to set the facts straight.
It's like when my DS pretended to be a girl when he was 3 -- when he said he was an alien, robot, dinosaur, and shark, that was fine, but a girl??? 
All of a sudden people felt the need to inform him that he was a boy, NOT a girl. Because they felt uncomfortable with the idea of him wanting to pretend to be a girl. 
In any case, it really sounds like it's mostly just that one assistant teacher who has a problem, and you've got the principal and head teacher on your side now, so I bet the whole thing will blow over soon. I wouldn't write off the whole school over the comments of one person, especially when other, more powerful people are being supportive.
We think there is a major classroom issue going on, unfortunately. My husband is flying home for another meeting with the principal now. the saga continues... I read my original inflamed email to the teacher and while it was hostile, it kind of really laid out our issues with maybe just a couple over-the-top lines .
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