R.D.
Can't she play at HER house?? Just tell her no, and maybe drop a note in their mailbox letting the parents know you're not comfortable with this. This way, everyone's aware, it's documented, and they couldn't do anything anyway. Those parents should have a closer eye on their kid. How do they know you're not going to pull in the driveway one day drunk and squash her? I'm not saying they would, but same as you don't know them, they don't know you.