I get what you mean about these digital cameras being kind of "pricey" for little kids, I just bought my 4 1/2 yr old daughter a Hello Kitty Digital Camera at $39.99 at Walmart, but when I checked the Internet no one has them any cheaper, and they are nearly impossible to find for kids our kids age anyway.
You might try ebay and see if any pop up, if you check weekly you might get lucky. I didn't want a used kid's camera, don't want to wait for the resalers to get some in and on ebay (I'll bet within 6 months these will be 1/2 the price on ebay), so, I just sucked it up and bought it... knowing that I am going to be constantly saying "don't drop it" and "put it away in your drawer when you finished with it." Not to say my child isn't going to drop it, toss it, and leave it everywhere... She has tons of these kinds of things and drops, tosses, and leaves them all over and then SCREAMS when she can't find them and expects me to find them (mother's are suppose to read minds and have telepathy to all missing items in a family - or so everyone seems to think).
Good luck. Unless your daughter is really wanting to start taking pixs (mine is), I'd wait until the price comes down to about 1/2-2/3 as you are right, $40. for a preschooler is nuts. (call me "certifiable").
Gayle