They have a right to privacy, but that does not mean that the American public is going to give it to them. That said, there was nothing wrong with Malia Obama dancing at Lollapallooza. There was nothing innappropriate or saliacious about it, and she was simply behaving like a normal teenager.
Yes, the first family has a right to privacy--especially the first kids. It seems the Obamas have done an excellent job of shielding their kids from the spotlight in order to let them grow up in relative privacy. The first kids have been able to experience some of the events and activities of a first family, while also leading a fairly normal private life as kids.
Yes, everyone, including the first family, has a right to privacy. It is a basic human right to have at least some degree of privacy . Transparency in government only applies to official government business. Malia Obama's exploits do not involve government business, and thus cannot be held to the same scrutiny. At the end of the day, she is just a teenage girl, and should be allowed to behave as such.
It is possible to go to Lollapalooza without twerking and flashing the crowd. Malia Obama knew many people would be watching her and that her actions would be recorded and criticized. It is unreasonable for any first family of the United States to think they have the same level of privacy as any citizen.