Since Lilo is training to be a therapy dog we spend a lot of time trying to interact with children. Frankly she has no problem with it. If anything she loves jumping in their laps to be petted.
But in that situation you were exactly right. When i see a child running towards Lilo i pick her up and hold her, positioning by body as blocker so the child cannot reach up and grab her in anyway. I dont want Lilo to be afraid of children or dislike being around them so usually i spend a little time educating the child. If possible i ask them to sit criss cross on the floor and i sit with them and let them pet Lilo. if they do well with this i allow Lilo to jump in their lap after asking permission from the parent. Lilo usually just sits there. LOL we do the 2 finger rule first. you pet using only 2 fingers just on her back. Lilo Loves it and Loves the kids energy and excitment. it usually becomes a good experience for all involved but we have had our share of out of hand children where they dont even get to touch her.