Okay, I feel your pain. I have a 4 yr old who does it. She also will chew her toe nails if I don't keep on top of them! I learned this was her favorite past time at nap time at school!! Lovely-- yes I know. Anyway, my daughter developed a staph infection on her bottom and I was told by her doctor that because she bites her nail it increased her chances of infection and reinfection. Wonderful for me, she also is a nose picker (she learned from her grandpa) and that is where the staph colonizes. Yeah, so she picks and ingests and keeps reinfecting herself and we have finally been free of any abscess for 2 weeks since the start of this problem in Dec 08. She has been on antibiotics 4 times now. So, the problem is more than just vanity. I didn't discipline my daughter because I felt the pain of the abscess was enough, but I did let her know that her nail biting helped cause them. Don't know if that had any effect. What did have an effect was that every time I saw her biting, I had her go and wash her hands. Dr. even okayed her using germ X after every potty break or nose picking incident. I sent instructions to her school and they have been wonderful in following the regime as well. She has gotten so tired of washing her hands that she seems to be keeping her hands out of her mouth on her own. I have also found by personal experience, that the germ X tastes awful and since we have started that, I haven't caught her nail biting at all! So, you might try that, but it is hard on you because you have to watcht hem like a hawk and be very consistant. Now, until you get her through with the nasty habit, you can help protect her from getting staph or other bad germ by cleaning her hands with an antiseptic cleaner 3 X a day. I spray Katy's with bactine. The liquid can get under the nail and all around the cuticle, where the soap really doesn't unless you wash like a surgeon before surgery and I have yet to see a toddler do that. Also, if you have the nose picking problem too, then swab (with a Q-tip)her nose morning and night with an antibiotic cream like neosporin. This kills any bacteria colonizing in the nose like staph. *Everyone has stap in the nose, but it usually is in low quantities that the body can naturally control - a fact I wasn't aware of. This swabbing will remove up to 80% after use for 5 days.
I didn't mean to write a novel on you, but I like to try and help if I can. Hopefully your dd won't contract anything, but the process of handwashing constantly will tire her and she will find another method of stress relief or habit to use as her calming agent. That is what my Dr. told me Katy bit her nails for - a calming habit. Hope this helps you and good luck.