Forgive me if I don't understand the Basic levels. Here are some thoughts. First, can the program be redone to a Basic 3 or 4 and pass her up a level that way? It seems to me that a few elements could be changed to make it into a 3 or a 4? That way, she gets both . . . a routine and a test(s) passing? Or, can she be told that they are going to test her after the competition? Then, at the beginning of the next group class starting, the coaches test her up levels /group classes then? I've seen the coaches do this at our rink, moving skaters several levels during just one learn to skate session (in the case of a skater coming back to the ice).
Doing an element "a la carte" to pass a level is alot easier than doing it in a program where one is flowing from one move to the next. I can do all my best moves "a la carte" and look impressive, but adding them all into a single routine is going to require a few months of everyday, hard practice. A time will soon come when the testing turns into doing all the elements in a routine to music at a set time. I think the small rink competition is going to give her and you a little glimpse for the demanding physical and mental nature of skating a routine.
Most little ones don't understand competitions. They understand a pretty dress, parents making a fuss over them, and them having to try hard. But, it's still play. And, that's how it should be. Let the kids have fun and be kids. Even if she does a competition, call it a "dress up show."
The early tests and local competitions at this level are all about encouragement. And, that's how it should be. Until they are serious or the required elements turn into being technical for a good reason (solid backwards edges are vital to jumping and landing jumps), then the tests & routines will naturally turn into nitpicking by the judges. Luckily, the kids are a little older by this time than your daughter, and they begin to understand it. For now, she's going to get a pretty dress, a stuffed animal, and feel pretty darn special from doing the competition. You are going to have a memory (and a video) that you will treasure for years. That's something that Visa can't buy.