I worked at a center where the older sibling of one of the toddlers in my group was molested by some other boys. They were going behind a playhouse and pulling down his pants, and touching him, forcing him to touch himself.
The parents only caught on to all of this when the older child began doing this to *his* little sister and they caught him. Sad, but true. The boy wasn't a bad kid, but was coping with being victimized himself. The parents got some help for him. His little sister was a toddler and, last I heard, seemed unfazed regarding the incident with brother.
While there certainly were some issues with the teachers, (and I had brought this to the attention of our director repeatedly), what about the little boy? Was he to go back to that classroom each day with the kids who molested him? Once his parents caught on, he began to know how bad what had happened to *him* really was. Unfortunately, in this case, the director didn't exclude any of the children, including the very overtly mean boy who was the 'leader' of these events.
The poor parents of the boy were then in the horrible position of having to pull both their children out of daycare, which they did. Their older son stayed in with us the toddler room for the remaining time at the center, with constant supervision by an adult.
I know you are upset that the inappropriate touch happened, I am sure. However, everyone who states that the daycare had their hands tied was right. At what point does the staff say "okay, *now* it's enough to warrant exclusion from care"? What if it had been your daughter who was being hit, bitten and then touched by another child?
You would want that kid gone.
That daycare center I worked at, so many years ago, was so fortunate that the parents choose the path of "lesson learned" and didn't sue--- they instead found a better care option for their family, also a new place where this little boy wouldn't have to live in fear that these kids would bother him again.
Letting your daughter know that her actions mean that she cannot be at *that* daycare any more is reasonable. (I would refrain from saying "no daycare" so this isn't a great way to get out of going to daycare in the future... acting up, that is.) Let her know that it is NEVER okay to touch another person's private parts, even if they are playing. There are other things to play. Her body is private for her, and she needs to remember that for other kids. And I agree with a behavioral evaluation. Kids do move through moods relatively quickly, but if she's having such strong swings in behavior as you describe, there's some sort of skill or piece missing (self-regulation, for starters) which she needs going forward.
And in answer to your last question: yes, removal from care was the first, best solution for the daycare and the children there. That does not mean that your daughter doesn't need additional help, it's just that the onus is not on them to provide it.