THANKS for the tips everyone.
About getting her a new bike..I think a 43cm would be way too small.

She actually feels fine about the reach, but, I want to make it a little easier on her so she won't cause any stress with her surgery. She actually didn't complain about the reach, but I don't think it's safe to be arched over like that after she had gotten her surgery. Sitting a little more upright would be great for her, especially since she's just crusing around town.

That being said, will I need to change anything on the bike to have 650c wheels fit? (the fork?)
Also, I'm gonna change the bars for sure, I'm deciding on either some risers, or promenade bars (or any other suggestions if you have them).. what do you guys think?