Biting herself until she bleeds is a pretty serious indicator that something is wrong. Self-inflicted harm/pain is most often related to frustration and inability to deal with some sort of stress or anger.
If you pay careful attention, you may very well notice that she does this everytime ________ (fill in the blank).
It could be everytime a certain child is around that sort of bullies her, everytime she colors and 'messes up' (indicating she's a perfectionist), etc.
You mentioned that she is a step-daughter -- it may also be related to that. Does she live with you? Or does she just visit on weekends? Is her father (your husband) ALSO the father of your 3 1/2 year old? And even if he isn't, does the other child get to live with the two of you, but she doesn't? Is your natural 3 1/2 year old also a girl? Any of these things could be causing some real identity issues, issues of feeling inferior, less important, less loved, etc.
Children who's parents go on to create other children within a different household often feel betrayed, left out and abandoned EVEN WHEN that parent is still very involved. Especially if the child doesn't get to live with that parent.
So if she's living with her mother, and only gets to be with Daddy on the weekend, but OTHER children get to live with "MY DADDY"-- do you see how she may be feeling extremely jealous and frustrated? So it's possible that instead of taking out her frustration on the other child, she's taking it out on herself.
Have you noticed if maybe she does it when she's been visiting with one parent or the other? (If she lives with you, does she come back from visiting her mother and start biting herself? If she lives with her mother, does she come to your home and start biting herself? Does she bite herself when she's with her natural mother, also?)
There are so many possibilites. Did you notice that she started doing this after a particular event? Try to think back and see if you can relate this to some kind of trigger that began it all, and if there is a particular time she does it... when she's been visitng her mother or when she visits your home (depending on where she actually lives)...does she do it when she comes back from a preschool class... when she gets in an argument with a sibling, when she can't do something really well and thinks she SHOULD be doing it well, etc... See if you can find a trigger and a pattern.
Either way, I would definately talk to her doctor about it, and see about consulting with a child psychologist.
Best of wishes for you and your family-- I know it must be really hard for you to see her doing this to herself!