M.,
It is extremely rare unless a newborn has a very rare metabolic condition for a baby to be lactose intolerant. They are typically sensitive to cow's milk proteins. Depending on how sensitive the baby is, eliminating obvious dairy from the diet may not be enough. My now 20 month old is very sensitive to dairy so I had to eliminate all obvious dairy and any dairy hidden in other foods (read every label). My son has the added bonus of being equally sensitive to soy. Avoiding soy is actually harder than avoiding dairy because it is hidden everywhere. It isn't unusual for a baby to be sensitive to both dairy and soy because the proteins are very similar. My biggest suggestion is to look at this website: http://www.askdrsears.com/html/8/t083301.asp figure out based on her diet which of these foods are the most likely culprit, and eliminate those. If, at the end of a week, her baby isn't better, she's either not eliminating enough foods or she isn't effectively eliminated the ones she's eliminating. Once I did that, my son was dramatically better after about a week and he was a whole new baby after about a month (a happy, sleeping baby).
The problem with just switching to formula is that if the baby doesn't tolerate formula, you run out of options really quickly and just have a sick baby on your hands. At least with breastfeeding, you have the option of tweaking your diet until you get it right.
The easiest way to do an elimination diet is to switch to "whole" foods - meats, beans, potatoes, rice, veggies, fruit. The more processed stuff is, the more likely it has things in it you are trying to avoid.
But, just in general, if she's determined to go the formula route, Similac Alimentum is the first level of hypoallergenic formula and the one I'd recommend she try first. If that doesn't work, the next level of hypoallergenic is Neocate or Elecare and she'd have to special order it from a pharmacy or get it online.
If she wants more info on elimination diets, have her email me at teralee999 at hotmail dot com. It is a bit of work but it is very worth it to have a healthy, happy baby.
:-)T.