Yes, she will have to declare some of that scholarship as income. Depending on how much other income she has, she probably will not owe any tax or even have to file.
Yes, you can claim the AOC, unless high income disqualifies you. Using the 529 plan does not disqualify you. Room and board are qualified expenses for the 529 distribution, but not for the AOC or tax free scholarship. Worse case: you a pay a little tax on the 529 earnings or she makes a little bit more of the scholarship taxable, and those are unlikely.
For details, see this post on the five main points on the 1098-T:
https://ttlc.intuit.com/community/college-education/discussion/re-what-do-i-do-with-form-1098t/01/37...
