Getting old touch ready to give to another

I've seen part of this question answered, but I still have questions.
I've bought a new touch for Christmas and will give my old touch to my daughter who uses a separate computer. I see I should do a restore to wipe out my songs, etc. to get it ready for her use.
Does this wipe out the updates that I've paid for and download onto the touch? I wouldn't want to have to buy the updates again for the same iPod.
When she connects it to iTunes on her computer, will it still recognize that that it was assigned to me and try to attach it to the iTunes songs that I bought for that device?
Thanks, I just want this to go smoothly on Christmas day and not have problems then.

Erase all content and settings: Connect iPod touch to your computer or a power adapter. Choose Settings > General > Reset and tap “Erase All Content and Settings.” That will wipe out all traces of the previous owner. When she connects to her iTunes, it will be like a new device and only sync the selections she makes from her iTunes library.
The OS upgrade will need to be purchased again as it is tied to your iTunes account, not hers. The good news is that the price is now US$ 4.95 and the latest update includes all previous updates. http://www.apple.com/ipodtouch/software-update.html

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