It’s not baptized, for the same reason that humans who are dead can’t be baptized-- sacraments are for the living.
LDS differ from Catholics in that they have a thing called
posthumous baptism or “proxy baptism”. For example, remember all the brouhaha about Mormons trying to
posthumously baptize Anne Frank after agreeing in 1995 to not try to proxy-baptize Jewish Holocaust victims.
For Catholics, however, the sacraments-are-for-the-living determination frequently comes into play with stillborn babies. Some priests will baptize them if there’s even the slightest chance of a little life still remaining, or will say no if the babies are very clearly dead at birth.
What is the purpose of Baptism? It’s entrance into the faith community. It’s asking for the grace of Christ to live out a life of faith in action. It’s the Gateway to Life in the Spirit. The Catechism says it frees us from sin; we are reborn as Sons of God; we become members of Christ; we are incorporated into the Church; we are made sharers in her Mission.
Dolls, like the dead, don’t live out a life of faith in action, or share in the Mission of the Church. Your priest was being very sweet to a little girl, instead of trying to get into theological nuance with a 5yo.
