I think most insurance companies will still insure her as long as she has held a licence and is not disqualified from driving. But check with your insurance company.
The guards are a different issue - she could be charged for driving without a licence if stopped in a checkpoint.
she will be able to get an Irish licence by producing her old UK one, as long as it is not over 10 years since it expired.
Where she applies depends on where you live. [broken link removed] a link to Dublin City Council if you're in that jurisdiction. Otherwise look up your local county council. In Dublin you fill out the relevant forms etc and can hand them in to one of the offices and they will check everything there and then. Then they post out the license within a week or so.