As JennyBee has said, the whole "Being the Pack Leader" is discreditted amongst most modern thinking dog trainers and behaviourists... Cesar Millan has no training in dog behaviour, and there are many campaigns from animal welfare groups to stop his shows because they encourage owners to use outdated methods in inappropriate circumstances.
There is one sentance you posted that I want to highlight....
He does play with her when he wants to and when she gets too much he firmly puts her in her place.
Why do you need to intervene if your Jack Russel is happy to teach her how to behave??
Dogs do a much better job of teaching puppies what is and isn't acceptable than humans ever can.
In general, and to answer some of your concerns... yes, this behaviour is perfectly normal. It's not aggression, but normal puppy play. Ensure your older dog can get away for some peace and quiet when he wants to, and don't force them to interact.
If I had a dog who wasn't able to teach the boundaries appropriately, I would use a house line, as JennyBee suggested, so you can seperate them without getting into a confrontation.
And, yes, you attempting to scruff (or do cesar millan bites) to control your pup CAN make things worse. It can make your pup handshy, nervous of you, or cause her to associate the presence of your older dog with this punishment and lead to the potential for aggression (rather than just play - in the mind of a pup "Mum got really cross last time I played with you, I'm going to warn you to stay away so Mum doesn't get cross again"). Obviously not every dog reacts like this, but the potential is always there. I know a lot of dog trainers, and they say they get most of their business from the need to undo the damage caused by people following dominance/pack based training methods with their dogs.
I've just seen your reply, and wanted to add that Bitches DON'T scruff their pups to discipline them - this is one of the fundamental untruths which goes to the heart of the problems with pack theory.... I don't want to clutter this thread with a discussion on this, as I'm sure you'll find the previous debates
and I'm sure it's more helpful to keep this on topic.
Welcome to COL!! Hope you find lots of useful info on here!