What you are missing is that the excluded foreign income does affect the tax because your daughter's other income, that is not excluded, is taxed at the same rates that would have applied to that income if she did not get the exclusion. The non-excluded income is "stacked" on top of the excluded income for the purpose of calculating the tax. So the excluded foreign income pushes the 1099-MISC income above her standard deduction and makes her pay tax on part or all of the 1099-MISC income.
(I assume that the 1099-MISC income is less than $432. If it was more than that she would have owed self-employment tax on the 1099-MISC income, even if she didn't owe income tax on it.)
To perform the stacking of income the tax calculation has to be done on the Foreign Earned Income Tax Worksheet. You can look at this worksheet in forms mode in TurboTax if you are using the CD/Download TurboTax software, or on page 32 of the IRS instructions for Form 1040. Basically the calculation is three steps.
1. Calculate what the tax would be if she did not have the exclusion. That is, add the excluded amount to her taxable income and calculate the tax on the total. (Income on worksheet lines 1 - 3, tax on line 4)
2. Calculate what the tax would be on the excluded amount only, if that were her only income. (Worksheet line 5)
3. Subtract the result of step 2 from the result of step 1. (Worksheet line 6)
