If that's your daughter in your avatar, her hair is pretty much my dream hair (aka "the hair my brother got and I'm still bitter about it") but I understand that kids can be mean, it's not even about her hair - they've just found something she's sensitive about and they're not going to stop poking.
For now, if she wants to wear it braided for school, I would let her. You have a lifetime to work on self esteem (and I do think she will come to appreciate her hair if you and other people keep telling her how beautiful it really, really is). I think we sometimes expect too much of young kids - it's a LOT to expect her to stand up under teasing every day when she's so little. If I could eliminate the target of the teasing, I would - for now. Eventually they'll a. forget about it and b. move on to someone else. She can start wearing it out again when she's ready.
Also, I think Redken Anti Snap and All Soft are excellent for dry hair.