With the VM I would just copy it over. That is what I have done on Mac's and PCs with VMware Fusion (Mac) and Player (PC) and when starting the VM program just select load/open VM and point it to the copied VM. It will ask you if you copied or moved the VM and the choice is really up to you. That works with all Windows versions and Linux versions of VMs.
As for as the old MBP you will need to Erase the WHOLE drive, Boot from a OS X install DVD, either Leopard or Snow Leopard and use Disk Utility to Re=Partition the drive as one partition then when that is done I would then Erase the drive, again using DU.
After that you will need to install Snow Leopard, Update it to 10.6.8, then create an account for your niece, Login to that account, Setup an Apple Mac App Store account for her, Buy Lion under her account and install it.
Lion is not transferable so you can not give it to her with Lion installed using your Apple ID account (Not legally and it will always be tied to your Apple ID)
Of couse all of the above can be done later after you install Snow Leopard on it and then give it to her. If you do that once the Snow Leopard install finishes and it starts for the first time to the video and system and account setup screen just hold the power button down until the system turns off. Then the next time She starts it it will be ready for her to do the setup.
