It can be one, or the other, or a combination or additional variables. Such as abuse or poor socialization (where socialization was attempted but failed).
Dog aggression is tricky. To someone who has no intentions of having their dogs around other dogs, it may not seem important. The situation wouldn't arise, and therefore, it wouldn't be a concern.
Some have learned to become dog aggresive, some have it genetically, some have been 'taught' unwillingly by their owners.
The owner sees another dog, tightens up the leash, becomes nervous, prevents the dog to posture properly and forces the dog in an aggressive stance (head up, front legs square, body ridged). They move off and away - the leash is loosened and the dog is 'reassured'.
Personally? I would be concerned about dog aggression. As my dog does encounter other dogs. I tend to travel with my dog so I cannot always control the situation in which we may find ourselves. Parker also shows and will soon begin obedience - so dog aggression is not an option.
So for me, it would be a concern and for my purposes, I would not choose to breed that bitch. I wouldn't be willing to take the chance.