Fargo, I posted before I read your thread. I was in your daughter's exact same situation (see my previous post). I'm now on the other side of this (graduated from a Duke/Stanford/Ivy college) and may be able to offer some insight based on my experiences.
First, the situation just stinks, and I'm really sorry you and your daughter have to go through this. Dealing with it takes a lot of emotional energy and just left me completely drained a lot of the time.
Here's my advice: Run on the team knowing that it's going to be draining, knowing you'll be battling the workouts, and knowing that it will be difficult (though not impossible) to reach your true potential.
If your daughter has good grades and can can, without the help of the coach, create a good training plan that can help her reach her potential without battling the coach and workouts season by season, I would walk away from the team. There are plenty of open and college cross country meets to run in unattached, and if your daughter is that good, she will certainly qualify for national championships that will put her on the radar of college coaches.
Another factor that you should consider, no matter how petty it may seem, is friends. Does your daughter have friends on or off the team that she can continue to hang out with? Running of course takes up a ton of time and I found that most of my social life in high school revolved around track. If I weren't on the team, I seriously wouldn't have had time to have a normal social life. So you just have to weigh that too, since your daughter is what, 14 or 15? She's just a little kid, and as a little kid runner (I was there) it's really easy to get too wrapped up in running, and it's good to maintain perspective. That can either come from you, or from a vibrant social life.
In hindsight, I wish I walked away from the team. It would have saved me four years of battles. My times would have spoken for themselves; in fact, I would have been liberated from running the 400, 800, 1600, and 3200 twice a week (at mid-week dual meets and weekend invitationals) "just to win," meaning I never, ever got to push myself. In hindsight I was being used. My team was scoring 42 points in a meet, and I scored 40 of them myself.
So not knowing you or your daughter, but knowing that she is an excellent student and an excellent runner with her sights set on a Stanford-type school (this was exactly me as a 15-year-old), only knowing that, I would recommend leaving the team and running on your own.
Also, and you can share this with her or not, but honestly in college, academically and athletically, it doesn't matter what you did in high school. It's hard to realize that now, and I never would have predicted it, but what you make of college is just so much more important than what you make of high school. What I didn't know then was that if I excelled at running, it was okay, and if I didn't, that was okay too.
I stopped running for the team my 5th year of college, and I then realized what running for the team made me miss. There is so much more to life and college than running (I know, blasphemy on this board). Looking back on it, I do regret not being able to take full advantage of all the opportunities afforded to me at my Ivy/Stanford/Duke college because I was running.
I chat with a few of my friends who are now professional runners, and although that is what I aspired to be during high school and my first years of college, I now realize that I am so incredibly grateful not to be doing that, to have had that injury that forced me to quit. That's quite something. I never, ever would have predicted I would feel this way at 15.
Also, I would be cautious about going to college only on a running scholarship. A few of my friends were like me, excited about running in college, absolutely hated, hated it, but couldn't quit because they wouldn't be able to continue college there. The places your daughter will be looking at have incredible financial aid, and so I would look at non-athletic money as well. The walk-ons were treated no differently than the recruited athletes at my school. Same everything, but they had the option to walk off if they wanted to and still continue college. I sometimes wished I was one of them. You never know what person you'll turn into in college. College is a place to grow, explore, and change, and you don't want to be wedded to what you were when you were 17.
These are just a bunch of ramblings from a has-been, so take them for what they're worth. Best of luck to you and your daughter.
Sorry for hijacking the thread...