You are wrong about the hair not being able to be donated. Here's what I got from their website:
http://www.locksoflove.org/faq.html
Where do I go to get my hair cut?
A. You can go anywhere to get your hair cut as long as the donation guidelines listed on our website are followed. We encourage our donors to go to a salon they are already familiar with so they will be comfortable when making their donation. View Donation Guidelines.
How do I package my donation?
A. Ponytails need to be completely dry before they are mailed. Place the ponytail in a Ziploc bag, and then inside of a padded envelope. Be sure to include the donor’s name and address on a separate sheet of paper so we can send out an acknowledgement card.
What if I can’t download the hair donation form?
A. The hair donation form is not required to donate. If you cannot download the form, we ask that you include your name and e-mail address or your mailing address on a separate sheet of paper so we can send out an acknowledgement.
How many ponytails does it take to make one hairpiece?
A. Six to 10 donated ponytails go into one hairpiece.
They need 10 inches - your daughter's hair sounds longer than that. They take grey and colored hair, just not bleached hair. If her hair is dry and not moldy, they will take your daughter's hair.
IF this is a true story (the dead hair thing you said makes no sense whatsoever), then they had no right to do it.
Your daughter isn't getting bullied at school. No one bullies a 5 year old for a haircut. If she doesn't want to go to school, it's because she KNOWS you hate this haircut - you cannot hide your feelings no matter how much you tell her that she looks cute. If she doesn't want to go to school, it's because SHE hates her hair.
Does your ex have visitation rights? If he does, I would go to court over this and have it written in the court documents that they cannot cut her hair again. I'd also deal with the issue of the CAT... that's pretty darn serious.
What do you mean about the grandmother posting this over facebook? The grandmother is standing by this, is this what you are saying? What is she saying on facebook? That you don't like the haircut? Well, maybe you ought to answer those posts and tell her that the haircut has upset your daughter - they took away her hair. She can talk about it on Facebook, but you can't??