I would absolutely not have my child around a dog that acted like that. It can be the greatest dog in the world, but not able to be trusted around children. I don't understand at all why she would be upset that you ask that the dog not be around your child. A responsible dog owner would be making sure to keep them separated herself!
I would just tell them the truth - you are scared that the dog may hurt your child, and you don't feel comfortable taking any chances. You'd really like to continue visiting, but only if the dogs are properly restrained or outside or whatever. It's hard to imagine even the most doting dog lover not being concerned that their dog is exhibiting aggressive behavior towards a child.
My SIL has two dogs that she considers her children - I've never seen a bigger dog fanatic. Her dogs have never displayed dangerously aggressive behavior, but I was having a problem with them being around ds when he was first walking because they kept running around him, sticking their face in his, causing him to step backwards and fall. Plus, they were constantly licking his face. Now she may think these are cute kisses, but I think it is gross, especially on my little baby. It was getting to the point that we didn't want to attend family functions because her dogs were going to be running around bothering ds, and she never did anything about it. We just stopped going to her house, and instead requested that get togethers be held at MIL's. We felt more comfortable asking to put the dogs outside when we were there, because it wasn't her house we were in. There were some awkward moments, and you could tell that SIL was irritated by it, but they scared and bothered ds, and I had to stick up for him.
But I would never have risked it if they have displayed any dangerous behavior. You really don't want to find out the hard way that you were right. Your situation seems pretty cut and dry - provoked or not, the dog can't be trusted around your dd. And if your friends can't understand that, well, then, there's just not much you can do about that.