This is probably my final update on this topic.
I finally got the promised refund from Apple iTunes Store. It's nice that they came through. I now have the money back from my daughter's account and she did use one of her free music downloads to pick up a song that we are learning to play on guitar.
Unfortunately, there's still no real solution for Canadians who want to give gift cards or iTunes Allowances for others to use for games or apps. It's still music-only and Apple has no explanation for this. I'm pretty much out of ideas for inquiring why this limitation exists. I've satisfied myself that the original reason of "Canadian commerce law" is invalid according to both the Canadian government and Apple, but there is no other reason forthcoming from Apple other than it's policy.
The solution I settled on was to discontinue using my child's account on her iPod Touch and sign her in using my iTunes account. She knows to ask before purchasing an app that gets charged to my credit card and I trust her. This has the added benefit that we can share games on both her iPod and my iPhone. Obviously, this isn't a good solution for friends/relatives who would like to simply give a gift of games to someone.
I'd still like to see this whole situation resolved for Canadians, but I'm not holding my breath.