I can understand from the confinement nanny's point of view. When we were small, we were given pacifier too, and yes, baby who make a lot of noise tend to quiten down. This is what I've been taught.
Having said that, my baby dislike the pacifier and he's a good boy, hardly cries, BUT nowadays (9 months later), he seems to be enjoying the comfort of having something to nibble, be it his fingers, diaper, etc.
So, to keep him quiet, I gave him the pacifier, which is hygiene, safe and his fingers won't get any rashes. He feels safe having something to nibble, and I am able to do my things when he's with a pacifier. Otherwise, he'll keep making noise and seeking for my attention.
Don't worry too much about baby not having healthy, nice set of teeth when you gave him/ her a pacifier. My hubby didn't use a pacifier before and yet, I don't see his teeth are any better than mine.
It's all up to individual. Whether you are comfortable with the idea of a pacifier, the nanny should comply. I guess she's trying to make things easier for herself as well.
Imagine having to cope with cooking and at the same time, baby is crying. If you were her, what will you do?