Rather than interpreting the sentence as you've written it, I believe what you're asking for is how it should be written if you want looking down from the summit to indicate something that Stacy is doing.
A possible version of the sentence is this:
Looking down from the summit, Stacy saw her friends' faces as a blur when they smiled up at her.
Note that I used as a blur because it's not literally true that her friends' faces were blurry, just that they appeared that way. (I'm being precise, in order to match the precision of the rest of the sentence.)
The essential component is this:
Doing X, Y . . .
You need to drop the use of the possessive Stacy's and use the just Stacy. Then finish the sentence in a different way. (In my example revision, I used her friends'.)