Is this woman my mother-in-law?!? *laugh*
My mother in law will still 'cradle' my 31 month old son in her arms as if he is a baby and expect him to snuggle quietly in the crook of her arm. He HATES it and squirms, wiggles, and fusses to get down. He doesn't want to be around her when she acts like that, so in order for her to get attention/affection from him, she has to stop treating him that way.
Yes, it drives me insane and I agree with you 100% BUT...I have decided that it isn't a battle worth getting worked up over. Some people just happen to see any child under the age of 5 (*cough* ridiculous, in my opinion) as a 'baby'.
You're doing the right thing by continuing to encourage your daughter's independence. Pretty soon, she'll be the one correcting your friends/family - and when it comes from the mouth of the child, the message is heard MUCH more loudly!