Hey Lee,
My son (age 8) asked to start learning how to play at age 7 and has been taking lessons for about a year now from a "former bandmate of a bandmate" of mine. If we're lucky, he practices once or twice a week (Gameboy/Gamecube tend to take priority....) but he still really wants to play. His teacher uses a combination of formal books (Mel Bay) and hand-written music (both tab and standard notation) of popular songs like "Wake Me When September Ends," "Come as You Are," etc. Since my son has taken a liking to Judas Priest songs ( ), he even wrote out the intro parts to "Metal Meltdown" for him to try to learn.
At this point (roughly a year later) he reads music pretty well (both notation and tab), knows quite a few chords (the simplified version), knows proper fingerings, etc. but is still definitely a beginner. I think he's doing quite well and, while I recognize that he'd probably be farther along if he practiced more, the key is to realize that he's still a kid and needs to be a kid. He'll get there at his own pace and time if he wants to (and I think he really does).
My two cents (based on my experience): If you're going to teach your daughter, just give her lots of space and have a lot of patience. Let her learn at her own pace, not one you think she should have. If you know of a good teacher locally, I think there's a lot of benefit to having your daughter take from an instructor other than you. You can still work with her during practices, play duets with her (which she'll love), etc.
Otherwise, I concur with much of what's said above (particularly Tedster's comments). All good thoughts, IMHO.
Have fun!
Mark