I still feel pretty new here and hesitate to offer my two cents but here goes anyhow--
Marieg, I think if I were in your shoes I would advance my daughter. She seems like she's open and supportive of the idea from what you said. I think the music issue can be worked out (with private lessons, etc.).
She is obviously very gifted and will no doubt handle the academic shift (it might still not be enough over time). And she will make friends in her new grade. You can help her to sustain her current friendships outside of the classroom.
You have obviously given this great thought. I too have done lots of reading on acceleration (our school district has no gifted program so it is really the only alternative besides homeschool for my DS--we are HSing BTW) and all it has done is strengthened my belief that when done thoughtfully, acceleration is a good thing. Trust your gut. The details will work themselves out.
Good luck. I feel for you
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