Your daughter is in high school, so the correct answer is that she should do what she wants to do, with some guidance from you. "Let" is definitely the wrong word here! She's old enough to make meaningful decisions about her life, and one of those is to decide what she wants to get out of high school. No decision here is objectively correct - which is the best kind of choice for someone to make!
On balance, colleges are aware that grades mean relatively little in high school relative to the abilities of the individual. The massive difference in how different schools rate students, allocate grades, and in quality of class makes it nearly irrelevant to compare someone with a 4.0 and a 3.5 without knowing far more than the college is likely to about a random public school (assuming she's at a random public school and not at Thomas Jefferson or similar).
If the choice is honors classes or easier classes and nothing else changes, most likely the more advanced classes would be beneficial from a purely educational standpoint, if she finds that they are at an appropriate level for her. It sounds like the odds are that is the case here from what you describe, but it's very hard to tell - each person is different. Giving it a shot for a year and then evaluating the results is not a bad idea - assuming she can always swap to a lower track next year, anyway, if things don't work out well.
However, there is another thing to consider here: if she would do something else with the time, it is possible that would serve her better. Band, sports, other extracurricular activities - those might help her more both in terms of getting into a college and in life. Again, this is really a personal decision she needs to make (and lots of people do both!); but she should think about what she wants to do and what will be useful for her future.
