Just being there for your friend is credit in yourself. These are the times when most people don't know what to do or say and tend to distance themselves from the family. And it's the people who stick around who are the ones that truly help others, like your friend, get through the day - the people who as "What can I do?" and really follow through with it.
I think a memory quilt is a fabulous idea for your friend. She could make a wall hanging of it, as well, to see every day (without risk of getting dirty) to give her comfort.
The loss of a child is never easy - no matter what age. I know - in my quest to conceive I lost 4 of them. For me, the people I hold dearest to my heart were the ones who cried with me as I was going through it all, and the ones to this day I can call to say "What would my life by like if. . . . "
Another great thing you can do in years to come is to always remember her daughter - send cards on the anniversary of her death, etc. As much as it will hurt, she'll be touched that her daughter was remembered.
Hugs to your friend and all that she is enduring. And hugs to you for caring enough to ask.