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I'd go with keeping the paperwhite. Mainly because your daughter chose it with love.
But also because it's a pretty good ereader and Amazon have a great choice of books, easy to get direct on the reader, and their aftersales service is excellent. You can also use Baen who will send directly to your kindle, or via the (admittedly not brilliant) web browser or a computer you have Gutenberg, Manybooks, this site and other providers of public domain books. It's a very user friendly device.
You don't need to change formats unless there is a "must have" book that you can't get in either Amazons .azw or .mobi formats. If you later find a need for this, there are ways, Calibre is one of the best and there is plenty of help here, but there is no immediate need to do other than enjoy your lovely gift.
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