Puppy playing too rough?

Question
I have a 4y/o female, fixed, chocolate lab who is a very mellow, well behaved lab.  Enter a new 9 week old female chocolate pup to the household and this pup plays REALLY rough.  Biting and barking and growling at our older dog.  The two dogs also love to play tug together.  We do not allow human-dog tug or rough play at all by any 2-legged family members and dogs.  I try to separate the 2 dogs when I think they're playing too rough, but the puppy growls and snaps at me when I pick her up after she's been playing rough with the older dog.  My older dog won't correct the pup even when she's on top of her and biting her all over (I can't stress how aggressive this appears in my view).  This young pup is also mounting stuffed toys, but hasn't done that to our older dog yet.  

Enter my friends very aggressive 18month old Beagle.  I had to ask her to leave last night, because both dogs don't look like they are playing, but attacking each other.  I had to tell her that we need to keep the dogs separate for a while until I work with my pup for some time.  I am very involved with dogs and foster dogs, obedience training, field training, agility, and other dog sports.  However, I am perplexed with this behavior and just don't know how to make peace in the house.  The puppy is well adjusted to her crate, and when things get out of hand and she's biting too much I have been crating her (my older dog does not crate).  I have been very apprehensive to correct with sharp scolding or rolling the pup over for a dominate down.  So far my technique has been distraction or to bring her over into a sit or down (for a positive reward).  Your advice is MUCH appreciated!

Answer
That sounds somewhat normal.  I am most surprised the 4 year old is so tolerant of the puppy.  Many dogs lose their interest in puppy biting games after they mature at 3.  Still, some older dogs do continue to play well with them.  My friend's male Golden was still playing well with puppies at 13.  Of course, he has always had puppies in the house going back to as a puppy himself.  

There does come a time to settle things, but it can be hard to judge.  I once let my Lab and a friend's play unsupervised outside, and they both had spots of fur missing from their face.  They healed and eventually graduated as dog guides.  Here is a link to a picture of a Shepherd I had and a Lab playing, http://www.photolocker.net/images/Labman/gretchenandellaplaying.jpg  What you need to watch for is a smaller dog or puppy getting the worst of it, retreating and not coming back for more.  Raised hackles, low growls, and quick, sharp snaps are bad signs, requiring a time out.  

It is not unusual when we have family and friends here to have 4-6 dogs in the house, mostly younger ones, and let them play all they want.  It can get rough. We do confine them to our family room, free of more fragile items.  We sometimes allow our 13 year old to retreat to another room.  So let them play, but keep an eye on it and step in when it exceeds your comfort level.