Welcome, and my sympathy for your and your daughter's loss.
Losing a child is against nature, so we will grieve more for their loss of a future.
I remember seeing one memory quilt a long time ago, all I can see in my mind's eye is a lovely little girl's dress appliqued to the middle of the back of it, along with a rectangle under it with her DOB and DOD on it. The front had other clothes on it all around the edges, inside was patched with most of the child's other clothing.
You might want to ask your daughter about what she thinks is the right thing to do. She will of course weep at the thought, but this is part of the healing process.
All our sympathy to you, and may the healing start as you sew on this loving quilt.