First off, I'll answer your last question: certainly. As you pointed out, prints can be made at places like Walmart (or even the place she is developing film now) using the card, so there's no barrier there to her getting the images out. The bigger difficulty may be her lack of experience with digital gear in general, a lot of people I know in this situation just keep shooting until their card is full and then become a bit lost about what to do about it. So, there's a learning curve there, easy enough to overcome if you're aware and can teach her and get her to take it in, back up to CD, and clear.

As for cameras, there are a ton of them that will do the job and do it well. I don't think you can really make a mistake there with anything new. Canon, Nikon, Pentax, Sony, Panasonic, Olympus, and more produce very good point and shoot cameras and they're all basically similar in capability and performance. If you're comfortable with a brand, to teach with it, go for that. Otherwise, find a good price to performance option according to need and go with that.

DP Review has a pretty good mechanism for finding cameras by feature. If you use that as a guide, based on what you know of her shooting habits, it may help you make a final selection.