Honestly and as much as I hate to say it, but I think now is probably well past the time that she should be sitting on his lap...at least in public. Sadly, I say this because we live in a society where everything is scrutinized and everyone is on guard about that "one" incident, "one" situation, one "bad" man. For both of your sakes, I think it should probably stop.
This being said, I wish things were different. Maybe allow for it at home. I mean, what a wonderful thing to have a close relationship between your hubby and his daughter. Maybe, just maybe, because of it, she will grow up feeling more secure with herself and more loved and want make bad decisions because Daddy didn't give her the attention that she needed. Then again, there are always other ways but I say, if you are home, and she wants to do it...then let her be a Daddy's girl for as long as she can.