I, personally, have not dealt with this since my DD is only 3 but would like to offer a big hug and a little advice. It certainly can not be easy for you, especially when you live in a small town atmosphere. I grew up in a small town and know what it is like to have everybody know everyone else's business. What I can say is to let it go. You can not change the gossip and hurt feelings nor should you have to. People are going to gossip and for now your daughter and family is the focus. The best thing you can do is live your life and not worry about them. In time, they will come to realize your daughter needed to be moved up and even if they don't, the important thing is you knew she needed it. As for talking to your DD, absolutely not. She might in time figure it out and you should be there for the questions but I wouldn't make it something for her to focus on.
