There's nothing wrong with the way you're parenting - it's entirely up to you, your choice. I don't think it would work for me, necessarily, but you're doing what feels right for you and for your baby. You know what your own instincts are, and you know your own baby; I'm sure you're doing a grand job!
I think it probably does mean that 'the baby rules the house', pretty much by definition. But isn't that actually the whole point of that type of parenting, doing what the baby seems to prefer and responding to what they're indicating that they want from you?
The idea of that kind of parenting is to be led by what the baby wants. So, demand-feeding rather than timed feeds, co-sleeping rather than putting them in a cot, carrying them when they cry to be carried, not letting them cry it out etc. So the baby being 'in charge' is probably accurate - it's just that with that type of parenting, the baby being 'in charge' isn't considered a bad thing.
Also, I think ALL babies rule the house to an extent, surely? It's not like you can just put your feet up and do what you like when you've got a baby in the house, even if you were super regimented. Ultimately caring for any baby is going to dictate how things go.
Next time your parents say 'the baby rules the house' then reply 'And that's as it should be, because she's a baby and she can't do anything for herself.' If they push the point, then say 'Well, this is how we prefer to do things - all babies are different and this is what works for us' or 'Times have changed since your day, you know! We do things differently now.'
(This is assuming, of course, that you aren't constantly complaining to your parents about how hard it is carrying her all the time, co-sleeping etc - if you are, then it's reasonable for them to suggest you try something different as a solution to what you're complaining about. But from your post it doesn't sound like you're moaning to them!)