Since you don't care - one way or another someone's gettin' a bed, I'd also ask the older daughter what she wanted to do. She'd probably love to make such an important decision.
Either way - an inexpensive way to make a canopy bed is to just hang a canopy from the ceiling and drape it around. If you want it out of the way, you can move it behind the headboard or just take it down. We did that for my daughter and she loves it. Plus, as she grows out of that phase, it's easy to remove. MUCH cheaper than buying a canopy bed itself.
We bought one very much like this. They come in all different colors, and ours has been quite durable - we've had it for at least a year and no tears yet.
http://www.bedbathandbeyond.com/product.asp?sku=11537910&...