Then, my wife said that the proper response is to say, "Thank you", since they are proferring a compliment.
However, my problem with this is that while we were involved with creating her, a rabbinic statement says that there are three partners involved in the creation of life: a male, a female, and God (Niddah 31a), so why are we necessarily accepting the compliment.
Furthermore, any glance at the Bible will yield the obvious result that the proper response should somehow entail a recognition of God's blessing and handiwork and that this is surely it.
Personally, I don't feel comfortable saying "Thank you" on people complimenting the cuteness of our daughter, because I think that we should say "Thank God".
The one problem with this is that it may sound weird for two reasons: 1) I may come out sounding like a religious freak and 2) someone expecting an appreciate response such as "Thank you" may feel slighted at not being properly acknowledged for their proffering.
Oh well, I guess I will have to figure it out situationally.