I agree that if you let her continue to do this then you're telling both this other child AND your DD that it's okay to take things that don't belong to you. It would be best to (very gently of course) tell this child as they are leaving "Uh-oh sweetie that doll belongs to DD, could you please put it back in the playgroom. Thank you." If that doesn't work I'd assume her mother would step in here... if not you might have to gently take it from her.
While I do understand wanting to declutter your house, it might be better for everyone involved if you box up all the junk, let the friend look through the box and pick 2 things that she loves and donate the rest to charity. There are many worthy causes out there.
GL,
Beth