Sorry to hear about this, trolly61. I have a son doing a similar degree course at the moment and I can't begin to imagine how it must feel to be in your position.
A post-A level Foundation Diploma is a common requirement to an Art/Graphics/Design type degree. It doesn't count towards the degree so I don't think that point is worth pursuing.
As far as granting posthumous degrees is concerned I don't know what the rules or usual practices are. I am not totally surprised that the university takes this view. I know it's not quite the same thing but if someone passes away a few months before sitting GCSEs I doubt the GCSEs would be awarded posthumously. On the other hand universities seem to offer honorary degrees to people who have not done any studies at all so it seems wrong that your daughter can't be awarded something similar.
You can appeal but my feeling is that she would only be credited with the stage she was up to, which is deemed equivalent to HEC.
A compromise may be to ask for her to be awarded an Ordinary degree or an Aegrotat degree (
http://en.wikipedia.o...ssification#Aegrotat) rather than an Honours degree- it's worth asking