It a little more complicated than that. Cervelo has some good info. on this at their website, as they offer 48cm riders a choice of the RS w 650c or the R3 with 700c, which they think are the two most accptable solutions, which I agree with: http://www.cervelo.com/bikes.aspx?bike=RS2009#G.
To build a small framed bike with 700c wheels, one of three things have to happen to fit the 700c wheel. One is severe toe clip overlap, which some people think isn't a problem, especially at high speeds on a racing bike, but clearly there are mixed opinions on this, especially for a more multi-use bike (and I have friends that have taken bad falls, or just got sick of always having to think about it, and some of us do need to navigate moving in and out of parking lots a couple times a day or traffic at slow speeds where it is a problem, but this is clearly an issue we will all have to agree to disagree on, it is very personal). There are many good racing bikes built this way, including the R3, blue, etc., so its clearly an option, especially for women who race and want access to a wider variety of high end wheels as blue tree mentioned.
The second option is changes to frame angles to accomodate the larger wheel in an attempt to reduce tco. Usually this means increasing the fork rake to push the front wheel further away from the rider, but this results in a bike that is too stable and handles poorly (I test rode a 50cm trek madonne that had this problem, it was very hard to get it to turn, felt like I was driving a mach truck).
The third option is to build the bike with too long a top tube, and expect the rider to accomdote with a very short stem. This also results in a bike that handles poorly, because it is too twitchy since the steering arc is dramatically reduced. (Or in this situation a rider could also push the saddle too far forward which effects their effeciency and balance on the bike).
SO, pros of 650c wheels are no toe clip overlap and good handling, with a reduced but adequate (at least for most of us) supply of high end wheels.
THe pros of 700s are a wider supply of high end wheels, but either severe toe clip overlap or compromises to the frame geometry that will effect the handling.
From what Susan says she wants this bike to do, I would recommend 650.
To understand better why its hard to fit a 700c wheel in a small framed bike, view the videos here: http://www.terrybicycles.com/videos
especially frame design 1 and 2.