I think it depends on how they plan to use it. If its mainly for reading, games and watching videos, and you don't care that its not portable (as in stick it in their pocket) I'd go with the Fire. My dd takes her Ipod touch everywhere so she would hate the Fire's larger size. She is used to playing games and watching videos on the small screen so its not that big of a deal. She uses it for taking videos and music too, but since she has a Kindle Touch she doesn't use her iPod touch for reading.
I'm getting her a smartphone for Christmas this year, so I think her Ipod touch will get used alot less after that since she'll be able to everything on that, then it wil just sit there collecting dust. If she had a Fire, at least she would still use that for watching movies on the go.
I can't believe there are 4 months until Christmas. If they go by as fast as the summer did it will be here before we know it. I better get shopping!!