The kid is not dressing up as an Indian Chief. She is dressing up as a guy dressing up as an Indian Chief. Nobody, but nobody, who watched the Villiage People thought for a minute that the guy dressed up as an Indian Chief was an actual Indian Chief.
Of course, what the song is actually about is irrelevant. If they thought about that for a minute, they would have a conflict between the need to be “anti-racist” and the need to be “non-hetero-normative”.
When sacred cows collide, you get hamburger.
I like that!