She told me her teacher made her start over because her writing was too tiny and basically illegible. DD said the questions were hard for her, but when she recounted them they were not hard at all...
Do you think she meant that answering the questions was hard, or that writing the answers was hard? Just what you said about her writing made me wonder whether she's been evaluated for any dysgraphia-type difficulties. Our DD has some 'mild' dysgraphia such that she can write answers to questions neatly but it takes her much longer than it does other kids and really slows her down (so she is totally at grade level, and probably even behind, for writing and thus also for the way they evaluate reading comprehension--i.e., by having kids write the answers out). It might be worth checking into for your DD, because if that is something she is having trouble with it might help her in school to get some accommodation for it (like being able to not write so much). Other than that, if she's not complaining about the level of work, I personally would not push it--at least that's worked so far for our DD. When she has wanted more advanced work (like in math), we have helped her find it, but we have not pushed. Of course, once she gets into junior high we will expect good grades, but we have not pushed her to do higher-than-grade-level work.
It does raise the question of how you get a kid to be motivated as in Mana's interesting post about the two different girls, but at least for our DD I don't think 'tiger mother' tactics would work at all and would be totally counterproductive. Not that that's what you're suggesting; just that I think the motivation for our DD has to come from inside her rather than from us, but every kid is different. Good luck!