QUOTE(Rachael.S @ Feb 21 2008, 09:21 PM)

If she doesn't need the theory for May, when does she need it? or would it just be better for her to pick it up as she goes along?
She doesn't necessarily /need/ written theory ever. If she wants to do music for GCSE or A-level or study music at university or music college, she'll need to do some. If she wants to compose her own music she'll find it useful (though she could always come up with her own form of notation or keep her tunes in her head instead of writing them down). But if she just wants to play her instruments, there's no automatic need to study theory formally.
The usual point where people suddenly "need" to take a theory exam is because they want to take grade 6+ on their instrument. AB require either grade 5 theory or an acceptable alternative before you can enter for grade 6 or higher. Way back, it used to be just grade 5 theory, but now you can do grade 5 practical musicianship or grade 5 jazz instead, so you can get to grade 8 without ever doing theory. TG (a different exam board) doesn't have a prerequisite like that, so it's perfectly possible to get all the way to grade 8 without doing any of them.
I think about a grade a year is fairly average progress for kids learning an instrument, so even if she ends up needing it in order to take grade 6, that's likely to be a few years away.
However, a good understanding of theory is useful and I think that even if people don't need to get grade 5 (because they don't take exams, or because they do TG, or because they have jazz or prac mus instead), they should learn some theory. It doesn't have to be formal written work, and her instrumental teachers will cover a lot of it in the course of normal lessons (things like staff notation, note values, time signatures, key signatures, dynamics, musical terms, etc.). A lot of theory is much easier to understand in terms of the keyboard though, so she'll find it easier once she starts piano, but most things where familiarity with the keyboard really helps, like scale construction, intervals and chords, come a little later anyway.
I'm not sure which theory book you've got, but one that's very easy to understand is Theory is Fun. It's more accessible for most young kids than things like Music Theory in Practice, and there are 5 books in the series (covering the first 5 grades).
There's no requirement to take all grades, so she'll be able to take grade 5 theory if/when the time comes without having taken any previous theory grades, though it may be useful to take a lower one at some point so she gets used to the exam situation.
I did grade 1 (when I was 7), then grade 5 (several years later, in a rush because I needed it to do grade 6 clarinet) and now I'm working for grade 7 (exam is next week). A friend of mine did grades 1, 3, 5 and 7 (roughly in step with his progress on piano). Plenty of people take grade 5 as their first (and last) theory exam.
(Incidentally, the same thing applies to instrumental grades - the only subject where I've started at grade 1 and taken every grade from there to my current one is piano. Everything else I've either started at a higher grade, or skipped some of the intervening grades or both. You can't (sensibly) take grade 1 and then skip straight to learning grade 5 material, but you can work your way up without actually taking the exams - it's the exams that you miss out, not the intervening stages of learning.)
All best,
T.