Over reacting or not ??

It's a complete no, no to have kissing between a child in a nursery and a teacher. The boundaries need to be professional and clear.

I would be very uncomfortable with it if it was my child too. I would speak to the manager/supervisor.

I also find the nickname a bit inappropriate...

I am both a parent and in nursery management. I would never let a member of staff do this.

Just realised this an oldish thread, apologies.

Sorry insancerre, you are far, far more experienced than me,
However, I personally think, that allowing a key child/minded child to kiss you is, for want of another word, inappropriate.
A hug or cuddle when the child is upset is fine, but not a kiss, this would make me feel really uncomfortable, we have to safeguard ourselves, as well as the children..
personally I agree with Dlah
Again my view only, if others are comfortable with it, then, so be it..

Within a nursery we advise our staff to be comforting without pushing boundaries, kissing is a no.
We will always offer a cuddle to a child who wants/needs one, but for example children who say 'I love you' to a staff member will be responded to with something like 'thank you, that's very kind' just to try and keep lines clear

I'd just have a quiet word with them and politely ask them to refrain

The teacher isn't a stranger!

She is a person with whom your child has formed an emotional attachment
Are you perhaps jealous?

I see absolutely nothing wrong with a child showing affection towards a caring and trusted adult

and tell you daughter not to perhaps?

Have a word with room supervisor, just say you'd rather she didn't, just that you keep kissing between family only.