P.S.
Hi A.,
I am 37, married 17 years, have 4 boys (oldest 12) and a girl on the way any day now. I don't have experience with little girl relationships, but will soon.
Congrats on the engagement! Marriage is hard work and you're starting off young, with a family already. I encourage you both to put in all the extra effort it will take to keep your wedding vows unto the end. Remember that you are the role model of womanhood/wife for your daughter AND son. Same for your husband-to-be.
I completely understand your hesitation to "confront your elder", probably out of respect and based on what you were taught. However, please acknowledge that being respectful to an elder does not mean allowing that elder to disrespect you/your boundaries/your home. Although you have posted a question about playmates, the deeper issue is you setting a standard and enforcing it. I encourage you to think about other circumstances with other people and how often you maintain your standard (not a bad habit or selfish desire) despite their efforts to get you to bend. (This is also a characteristic that will be directly related to how satisfying your marriage will be after 5, 10, 17 years.)
Since high school, I realized that no matter what kind of people there are in the world, they are going to be in someone's family--smart, stupid, kind, mean, dependable, selfish, etc. It's taken me much longer to be courageous enough to confront the ones who ARE in my family than it is the "customer service" person who has the same traits.
So, "bad blood" or not, you must talk with your aunt about the rules in YOUR house and for YOUR daughter--which toys can be played with, no hitting, no name calling, etc.--and that the consequence will be to send the child back downstairs and not allow her back for 48 hours (or something like that) and vice versa. That you will be telling your child she can come back upstairs anytime she's being treated rudely or harmfully. You must be willing to accept that this talk WILL lead to bad blood ON YOUR AUNT'S PART. Your part is to allow them to play as long as the boundaries are followed. When your daughter asks why they don't play anymore, you tell her it's b/c a good mother is responsible for making sure her daughter is safe and treated well.
A positive of your situation is that b/c you're dealing with family you are actually present/nearby when these situations occur. Unlike if it were happening at another location with people you don't know at all. Use this as a training ground to transition from your family viewing you as A. the girl, to seeing you as A. the responsible adult that requires their respect.