T.M.
I don't think it really matters where you put her. If you put her upstairs, you can bring her downstairs with some toys and let her play in the living room while you are doing what needs to be done. If you put her in the downstairs bedroom, she'll get used to the noise and be able to sleep through it.
Disadvantage of upstairs:
1. stairs. Until about 2 or 3, you really don't want a child climbing on the stairs solo.
2. You would need to bring toys down or have some toys in the living room at all times
3. Climbing the stairs in the middle of the night if the baby needs something.
Advanatge of upstairs:
1. majority of toys out of site.
2. quieter downstairs for you when daughter playing.
The only concern I would have is if the upstairs is a loft. If it is a loft, there would be no way I would put my young child up there.