Note that work permits are not issued beyond the validity of the passport/travel document, therefore her permit will also expire when the passport expires. Look at the documents again. This is what she has to do:
1. Renew the passport
2. Renew the work permit - she should include a copy of the LMO, job contract and/or offer, recent confirmation of employment letter from her employer(you) and all the other documents in the checklist.
3. Apply for a temporary resident visa(work visa) after receiving the new work permit.
If by Oct 2012, she has already applied to renew the permit but hasn't received it, she will have "implied status" and can continue to work as long as there has not been a change in conditions until a decision is made. If she has not applied by then, then she must stop working until such a time that she receives the work permit.
Whether or not you need to do the LMO all over depends on how long it was originally issued for. If for instance, it was granted for 2 years and her work permit was issued Feb 2012, she is eligible for a work permit from Feb 2012 - Feb 2014 and still has Nov 2012 - Feb 2014 left over(assuming the permit expires in Oct 2012 like the passport). In this case, you would not have to redo the LMO all over.
If however, she has already worked for the time period that the LMO was originally issued for, then you would have to do the LMO all over again.