Digital SLRs need lots of practice to get the technique right.
The XT has good picture quality. Focussing can be tricky - more so in low light.
The D50 has better focussing but the picture quality and size is not so good.
The E500 has a 4:3 format like your S1 IS but isn't as good in low light as the XT and D50.
I would suggest deciding what focal lengths she wants to use and look at the cost of appropriate lenses. The cost is scary. You won't be able to do video on a dSLR but the photos will knock your socks off - especially if you use RAW.
I, myself, have an S1 IS and a Canon XT.
I use the S1 for family type stuff - holidays etc - when I don't want to have to lug around a big kit.
If you're going for a dSLR then you do need good glass. I'd suggest getting the XT as body only then getting some nice lenses. I have the 17-35 Tamron, 28-75 Tamron and 70-300 Tamron although I would recommend not getting the 70-300 Tamron but the 70-200 Sigma instead. The lenses I recommend are all f2.8.
Some people use the 18-55 kit lens but it does not have good optical quality unless you leave it on f11.
The best lenses are made by Tamron, Tokina and Canon. Sigma makes good lenses but they have a reputation for not liking Canons too much. Having sai dthat, the 70-200 seems to have quite a Canon following.
Just as an alternative, have you considered the Pentax K100D? It runs off AA batteries - like the S1 IS. It doesn't take Compact Flash but its saving grace is that it has built-in image stabilisation. Canon only has image stabilisation when it's built into a lens - adding to the cost of the IS lenses.
Memory - most likely you'll need several 1GB cards. You can use smaller but the file size on the XT is 4-8mb.
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