If she can provide documentation that all of the materials she uses to produce the baby items are safe and tested, then she is only the artist putting those material together and should be pretty safe!
Doesn't hurt to have insurance though!!
People are going to chase the big corporations, they want to be instantly rich off of someone else's money, I can't imagine anyone going after a small dealer like your friend.
If you buy a used item at a garage sale, do you have the right to sue the seller in that case? I think the responsibility should fall on the buyer.