No, they are not taking advantage of someone with a disability. Many people with physical or mental disabilities or differences often have dreams of a career in entertainment. Too often, jobs that would accommodate those types of issues are given to a typical Hollywood actor or actress, who is then caked with makeup or inundated with special effects to reach the desired outcome. I think is admirable that American Horror Story is taking the opportunity to open jobs to those who would not normally be able to find a career in Hollywood.
The creators of 'American Horror Story' are not taking advantage of the World's Smallest Woman by having her on their show. In order to be featured, she agreed to the terms of the contract and knew the role she would be playing. The decision to participate was her choice with no evidence of coercion.
American Horror Story is simply basing a story off what was probably true and done in the past. The show is based in the 1950s and back then and maybe even before then, we have heard of freak show acts at circuses. They aren't taking advantage of anyone by showing what we all know has happened in the past. They are simply recreating the past and I don't think Ryan Murphy would do anything to offend anyone. He has proven very open and welcoming in his shows and movies.
The actor's appearance on the show is thematically appropriate, she is getting paid for her work, and she has stated publicly that her dream is to act. To accuse the creators of taking advantage of her is to assume this actor is incapable of making decisions for herself or knowing what is best for herself. If the actor is fully consenting and compensated in a way she deems satisfactory, then the creators are not taking advantage of someone with a disability.