If she does fine art there's some excellent fine art supply places around, although she'll have to drive a bit. My mom paints, and she lives not far from Kincardine, and I know she stocks up on supplies in Guelph or Oakville when she comes to visit me. the place she goes in Guelph is Wyndham's (http://www.wyndhamartsupplies.com/isapi/isapi.dll?page&home); I can't remember the place in Oakville, just that it's not far from the Whole Foods!
I do think oilcloth is fine as long as a child doesn't use the bag. I wonder if covering the oilcloth would protect from any phthalate contamination (from what I understand, the chemical alters hormones)? I really think oilcloth is my best option for making some of my bags waterproof - It's more flexible than regular vinyl and doesn't seem to crack. BTW - I got the info about the prohibitions against using oilcloth for kids products from an outside website - I think a store in San Francisco that sells lots of oilcloth.
If you need material that's waterproof, another option would be PUL or Procare. Both are used in cloth diapers, so I assume are most likely safe for kids. I know I have a ton of PUL here and it doesn't have that plastic-y smell at all that I associate with phthalates.
My local fabric store sells this stuff, I have no idea what it's called, but it's very stiff, about the same thickness as cardboard, and fusible on both sides. If you could find something like that you could cut it to size, put it in, and then hit it with the iron to fuse it in place.
I'm not familiar with either machine, but if you are planning to sew bags you should go with whichever one is better able to handle lots of layers of fabric, since at some point with pretty much every bag you have to sew closed a seam where there's a lot of thickness. I managed to completely screw up the timing on my otherwise wonderful basic Kenmore by sewing closed a very thick seam on the diaper bag I made for myself in the fall! If you have a sewing store nearby with both machines on hand they'll probably be able to advice you about which one would suit your needs better.
I would change a few things about it - add a pen pocket to the front (surprising how many times I need a pen!), and make the side pockets wider with elastic at the top and gathered at the bottom, for bottles/sippy cups. Adjustable straps, toy loop, that sort of thing. But it's a great place to start.
What about using an iron-on interfacing on the fabric of about the same weight, then using fusible fleece over top of that? I just did a bag that way and I'm really thrilled with how it turned out - it's soft yet still holds its shape really well. In order to solve the issue of having too much stuff to sew through in the seams, I cut the fleece to the same size as the fabric pieces, and then after sewing each piece together I trimmed the fleece back as close to the stitching as possible. That way when I turned the bag there wasn't all that fleece in the seam allowance, if that makes sense.
I would definitely use something very stiff in the bottom of the bag.
They're handy, quick, and once you've made a couple they really make it clear how a bag goes together. Most of the bags I make now are much more complicated, but still use the same basic method of the lined zipper pouch!