Step Monster

I am a step mom as I have mentioned before. I am also a "real" mom. My kids that I gave birth to call me mommy. My step daughter calls me Amber. She may refer to me as bitch behind my back, but I am ok with that. Well my husband and I have just found out that her mother and step father have been making her refer to him (the step dad) as "daddy". Their reasoning behind this is that her 2 younger brothers need to hear her calling him this instead of his real name because they try to call him by his actual name instead of daddy. This has been going on for 6 months. The oldest of the younger brothers is 7. Yes, 7, as in years, not months. The youngest of those brothers is 2. My youngest is also 2. He still understands that he should call me mommy, not Amber. So how is it that now this 7 year old and this 2 year old don't "get" it? You know both of my little kids have tried to call me Amber. This is because they hear other people calling me that. I explained it to them this way. I told them that yes, my name is Amber. But they are the only 2 people in the world who can call me mommy. It is their special name for me. They think this is great, and so I don't have any problems anymore. So I am truly having a hard time with this step dad/daddy thing. My husband was heartbroken. Jessica said she doesn't want to call the step dad, daddy, but she doesn't want to make anyone upset.
I pointed out to her that I know her step dad has been around for a long time. He has been a strong parental figure. He is a reasonably good guy. I told her that if she wanted to come up with a special name to call him other than his actual first name that it would be nice. But that daddy is reserved for her actual daddy. How should we handle this? It is very weird.