Not to question what happened to you or get offtopic, but you might be thinking of a simple traffic checkpoint. There are distinct differences between a DUI checkpoint and a simple license checkpoint. DUI checkpoints must be marked (with appropriate signage a specific number of yards from the checkpoint on either sides of the roadway). For simple checkpoints, you need only have a systematic method of choosing which vehicles are stopped (every other car or every 3rd car or every car).
Searches of vehicles can only be done when there is probable cause to believe drugs are in the car (or other illegal items, not necessarily just drugs). Probable cause can be reached based on the driver's behavior (as well as odors and other evidence on the person). A K9 giving a positive alert for drugs also gives probable cause. Most of the time, the driver GIVES CONSENT to search the vehicle, which negates the need for probable cause. Searching a vehicle when you have probable cause (and/or consent) is not violating constitional law.
Oftentimes, vehicle seizures pursuant to a drug arrest or while driving revoked (or any violation resulting in an arrest) depend on state laws and statutes. But searching the car following seizure of the vehicle is for the protection of both the owner and the agency. Doing an inventory to record what is contained in the vehicle prevents someone from claiming the officers stole something from the car.
Not sure what any of this has to do with getting your car stolen. Sounds to me like they could have determined beforehand that the car was obviously stolen when they realized the driver was in fact not the owner of the car. Instead of seizing the vehicle, your daughter should have been notified that the vehicle had been stolen. Sounds like a pretty big mistake on their part.