Hi, can't give too many identifying details but here goes... have recently been to choose a puppy, the breed is a toy.
The puppies were plump, active & outgoing. However, the adults (there were a few) live in a shed which I only saw from a distance. Am I silly to feel sorry for these little dogs living away from the house. They're probably perfectly happy, I guess, knowing no different, but I dread to think of them in the winter.
The other thing was, the mother of the puppies looked really scared, dragging tummy along floor etc. Is this normal behaviour for a mum in the presence of strangers. She looked very afraid.
We saw another couple of adults, & they were friendly & typical of the breed for their sweet little ways.
Tell me I'm daft, please.

I couldnt' tell you you're daft - because I'd have warning bells ringing too - it's normal for some dogs to be wary of strangers - but they should be more confident in the presence of their owners (unless there is something very wrong with their relationship..........;))

No you are not being silly.  However I suspect I know what breed you may be talking about and if I am right, some do crawl around on they tummies with strangers.  If she settles down quickly and comes out of herself after a short while, she's probably OK.  My own first 'tiny' crawled round on her tummy the first time I saw her but later went into the showring and travelled widely with me without any problem.  However she was never the most sociable or outgoing dog with other people (greatly confident with all other dogs) and I came to realise it was just in her line.  Some do, and some don't.

Don't be too worried about the dogs being in a 'shed' either, as long as they are happy, clean, healthy and warm/dry and have ample living space.  Some of the tiny boys can be a nuisance wetting the furniture in the house, which is whe some breeders keep them in separate accomodation, but I would prefer to see puppies kept indoors - as much for 'socialisation' as anything.

If you are in any doubt, do some homework about the breeder before you spend your money.  There are always other pups to be had, no matter what people tell you.