Weeblewobble, I think all three of you handled the situation beautifully. (I noted that your husband decided to not apologize. I think he was right because I think your daughter did nothing wrong.)
I'm a retired man. I do not go around touching other people's kids, so I wouldn't have tried that lame joke in the first place. But I especially would not have tried it again if a first attempt at humor failed!
If I were the parent involved, I don't know that I would be wary of Gary because of fear that he is a predator. But I would be wary of Gary because I sense that something is "off" or "different" about him. I'd be very watchful of him just because I'd be concerned that he might keep on with the "jokes" until he satisfies whatever it is he's looking for - and because your daughter clearly doesn't want this kind of interaction.
If you or your husband want to, I think it would be perfectly polite to tell Gary (in a calm, polite tone of voice) that you and your daughter do not like those sort of "jokes" and you, as her parents, want him to stop now. As long as it is said in a polite tone of voice, I think that is perfectly appropriate for you to say. The only polite response from Gary to hearing that from you would be for Gary to say, "Of course! I won't do it again." If Gary argues, though, you'll know something is very odd about him and you can give him the broken record of, "Nonetheless, we want it to stop, now."