Some kids love to play with little kids. Sort of like a pretend baby sitting thing. I loved to "take care" of little ones, even when I was really too young to do so. I wouldn't worry too much about it being weird that an older child was enjoying playing with younger children.
That said, of course as the parent it's your right and responsibility to make sure your own children are safe, and if you're not comfortable with what the older child is doing there is no problem in letting that child know in very clear and simple language that she isn't to touch your child, hug your child, etc. I think asking your daughter to choose other areas to play in was a good idea, since even though that child seemed too old for the area, she did have a right to be there. (Just not a right to bother your daughter!)