If she is happy enough to sleep with it out, and have you brush the bird's nest out each morning then I would continue with that... plus it is extra mummy daughter time... however I am certain she will get to the age where it will be a drama to do anything with her hair
Have you tried using the flat elastic bands that are snag free? They sit flush against the hair so won't dig into her if she lays on them
The only way I can handle my hair at night is a loose messy bun on the top of my head - looks a million dollars but it's comfortable whichever way I lay