We got for our 7 yo ipod touch (bday gift). All the purchased games can be downloaded on his ipod too (no double fee, ipod is registered under my apple id- of course I didn't set up my email to be downloaded on ipod).
There is great face time feature which only requires wireless network connection (not a phone number and line) and she will be able to "call" and see anyone who has iphone or ipod touch. My kiddos were using it a lot while visiting grandparents last summer (their first time away without mom and dad! They were missing us and were happy to see us on the screen :) not to mention that zero minutes were used for the "calls").
Also she will be able to email, text any cousin, friend or you :) Take pictures and movies too.
She will be able to play games, listen to the music, check the weather ;-) (my kids like doing it) and what not. Endless possibilities!
Your daughter would be very happy to have ipod touch. I don't think older versions have camera- if not then no face time.
Good luck with the decision! And happy birthday to your daughter :)