My mom, who is mostly raising my niece, has the same issue with the little girl across the street. Sweet girl, parents seem reasonably loving and all but make some lifestyle choices (smoking, loud but good natured arguments in front of the kids) that make mom a bit nervous. She's got it established with them that 90% of the time, the girls play either at mom's house, or somewhere else (a park, for example). The few times that niece is over across the street, it's daylight hours, for short periods of time, and mom is very careful to make sure she walks niece over to see that things are as they should be before she leaves.
It's hard when then parents don't have the same values as you in terms of health and safety issues. You can compromise some, if you feel that you are safe doing so, but trust your gut. Also, consider that you may be doing this little girl a huge favor, developmentally, by modeling more socially acceptable behavior, so she knows that her family isn't the norm - she may be able to make choices more clearly as she grows up when the societal norm and her family norm are in conflict, knowing that there IS room for variation.