In my himble opinion I thnk you are dealing with 2 seperate issues here. The first is an engine swap. You have a rebuilt 2.5L. You are sitting with a 2.5L that has 150K and the life expectacy is 250-300k. The engine you are putting in is totally unknown. With a rebuilt you have no idea of who did it so you dont know the quality of the parts or the knowledge of the people that did it, or the miles on it since the rebuild. Vote for keeping your engine.
The auto trans. The tf999 or aw4 are both good trans.. One of the bigger gripes of the 2.5 crowd is the ax-5. It is weak for offroading but for most dd it will last the lifetime. You will probably replace the clutch especially if you are teching her to drive a stick on it, but the ax 5 and most manuals are more durable by a long shrt. When compared to the fuel economy of the manual and the auto it wins.
More important is the saftey. The manual requires attention. You are engaged with the vehicle as it moves. It is much easier to become distracted in an auto. Talking on the cell, texting, putting on makeup, etc. when you have to use your hands and feet to keep it going. More important is the stopping capability ina manual trans. Using the engine braking power to slow you down quicker when you need to do the quick stop shortens the distance considerably.
To me I personally think you are going to do her a favor by starting her off on a manual. My GF will not drive my Jeep or any other manuals because it is an inconvience....she doesnt know how to drive a stick. We just got into a fight over buying a new car because I wanted a manual in a new Dodge Dart; guess what, its going to be an auto.
That is my .02
As far as the price goes there is a member here that has a shop in Florida. I know you trust your guy but I seriously cannot recommend this guy enough. If you are going to do the conversion please compare. He is on the other coast but he is the most knowledgeable Jeep guy I know and I am definitely not stroking ego's when I say that.
His name is Max: http://jeepspace.jeepforum.com/Mean%20Max
Good luck. The GF son is 14 and in Michigan you can get a permit at 14years 9 months. The idea of him driving a car in another few months scares the living ##### out of me! He will be learning in my Jeep. With the 2.5L and the stick shift on 33's. Slow but a sherman tank and I know at the end of the day it is the safest thing in the world for him to drive in.