1) As a fellow XSi user, I will let you know that if I had the money to upgrade, I would shoot for the 7D. Just like Mann said, I'm not convinced the performance you'd gain beyond the XSi with a T2i or 60D is worth the price. In my mind, the only worthy selling point of those models over an XSi is video, and I've already got a point and shoot that I can use for video in the meantime.
2) I've never shot on anything larger than the APS-C, but it has one advantage that is useful when shooting something like your daughter's games. The 1.6x crop factor effectively gives you longer lenses. This is obviously a disadvantage if you're trying to do group shots or something that requires a wider angle. For field sports though, I've been satisfied using the crop factor to my advantage.
3) I also coupled the XSi with the 70-200mm and have used it at baseball and football games with success. I have a 50mm, but it is the 1.8, which could save you a bit more cash. While the 1.4 certainly would give better image quality, I never have regrets about the 1.8. It literally is like a toy. It's small, inexpensive, and I don't expect too much from it. In some cases, that's exactly what I need.
I've been told by several photographers, some of them friends, some professionals, "Put good glass in front of any body."