It is sad for your little girl and maybe she will view her friend in a different light. If the friend came to your house she would see a different way of doing things. Unfortunately she may not influence her parents conduct and an outside agency will have to intervene.
i would report it, but thats just me i cant stand people doing that, i treat my lot like my family i wouldnt dream of doing that, i just understand why some people can do that without even feeling guilty.