I do not knit, but my mother in law does. Here are three nice looking books I saw that I gifted her.

Simple Knits for Cherished Babies by Erika Knight
Special Knits: 22 Gorgeous Handknits for Babies and Toddlers by Debbie Bliss
Adorable Knits for Tots: 25 Stylish Designs for Babies and Toddlers by Zoe Mellor

Debbie Bliss has some lovely patterns

It's not a complete book, but I'd highly recommend Elizabeth Zimmermann's pattern for the baby surprise jacket, which is available from Schoolhouse Press. I just made my first (and I'm expecting my first child in April), and it is an amazing little sweater and fun for a knitter.

If you want a basic pattern that you can go nuts on, I recommend any of the Knitting Pure and Simple baby patterns - they're perfect top-down cardigans and pullovers that are easy to embellish with cables or colorwork, or they just look great plain. Plus they knit up quickly with no seaming (ask me about the jacket I knit for my son, which sat in pieces for six months because I hate sewing up...) so it's pretty close to instant gratification.

My favorite book ever is out of print, but can still be had cheap via amazon - Monkeysuits by Sharon Turner.

I have Essential Baby by Debbie Bliss...it's got some great patterns. (though her books don't have schematics which isn't great). The Erika Knight books are great too.

Hands down - the Itty Bitty Hat book.

One of the very best children's (not just baby) knits was Rowan's Tadpoles & Tiddlers -- there is a baby blanket in there that I have made several times, as well as other things. It has been out of print for a long time, but you can get a copy here:

http://www.alibris.com/booksearch.detail?S=R&bid=9570875739&cm_mmc=shopcompare-_-base-_-aisbn-_-na

I also have the Erika Knight book (not as great as Tadpoles or Debbie Bliss, but nice), and just add that Debbie Bliss has MANY baby knit books. I made her little mouse cap for my own children, as well as a few others.

I quite like this little book (love the donkey jacket)

http://www.theknittinggarden.com/db-babyknits.htm

here's where to get it:
http://www.google.com/products/catalog?q=debbie bliss the baby knits book&oe=UTF-8&cid=1561433712732872444&sa=title#ps-sellers

More Debbie Bliss:
http://www.debbieblissonline.com/Books.asp

Classic Knits for Kids, Great Knits for Kids, Toy Knits, are all great baby and child knit books

http://www.google.com/products?q=debbie bliss books&sa=N&start=0

All of the others are great - I'd add the Chic Knits for Stylish Babies by Patricia Wagner - it's got some really cute stuff!

I have Debbie Bliss Simply Baby, which I love. What I really like about it is the patterns vary in size (I think up to age two?) so you can knit bigger sizes that will fit your little one a bit longer than the wee 3 mo patterns.

I also like the patterns themselves - they're cute, but very plain and fairly tailored rather than being adorned with pom-poms and ruffles.

I have Debbie Bliss Simply Baby, too, and love it. A friend sent it to me when I was put on bedrest, and I have found several projects in it to keep me busy. All the patterns are for tasteful and modern pieces that I find very appealing - nothing frilly.

I just finished the hooded jacket and love it!

Natural Knits for Babies and Moms: Beautiful Designs Using Organic Yarns (Paperback)
by Louisa Harding

This is a great book with cute patterns and organic yarns.

I love, love, love Knitting for Baby by Melanie Falick. Very classic patterns that will hold up well in all eras. That said, my 3 favorite baby patterns come from 3 different places- the Big Bad Baby Blanket from the first Stitch N Bitch book by Debbie Stoller, the Child's Placket Neck Sweater from Last Minute Knitted Gifts (although the pattern in the book has some mistakes; you can get the pattern sans mistakes for free online from the publisher), and the stay-on baby booties from Knitting for Baby.

Have you considered a gift certificate to a local yarn store instead? If she's an avid knitter, she probably already has some patterns picked out and might rather prefer to stock up on the yarn to make them.
You could even make a day of it together if you like to shop with her -- there are lots of pretty yarns out there and a second pair of eyes can come in handy when mixing and matching.

(Question poster)
Thanks for all your ideas! I think I will pick her up a couple of Debbie Bliss' books from Amazon.

Sadly, we live in Northern BC, a long, long way from any shops to physically go shopping in, otherwise a trip would be in order!

She has a closet full of yarn hoarded already, anyway. Her husband would kill her if she brought any more home! ;)

If she's an "avid knitter", I'd recommend NOT getting any Debbie Bliss books, which are for beginners. The Expectant Knitter is a new book that's pretty cool , and Lucinda Guy's "And So To Bed" is cute too.