Until now, my daughter has used my apple ID and account. She now wants her own iD and account but doesn't want to lose her downloads - is this possible and how?

What we want to do is retain each of our respective downloads whilst allowing for a future separation of the account. She has an iPod touch and I have an iPad. Currently she uses my account but wants her own and frankly I don't want many of her downloads. How do we separate?

Starting a new account does not erase anything.
There is no such thing as "separating" content.  Give her a copy of the entire library, and let her delete whatever she does not want.  Meanwhile, you can delete any of her stuff from your original library.

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