Strangely, Lucy is more scared of little dogs! (and cats!). She is 3 and although she has got better, she can still get nervous for no apparent reason.
What we tried with her was not picking her up unless she was in danger from the other dog so that she didn't think 'Oh there is another dog, pick me up mum!'. We have had to relent on a couple of occasions if she has been too distressed, but she mostly grew out of it!