Some gyms say this to keep a kid in their program, it’s actually said a lot. I’m not trying to be rude, but I’ve been in the sport a very long time. I’ve seen many a talented compulsory gymnast flame out by level 7. I’ve seen gymnasts who didn’t even qualify to state meets in lower levels 2 years in a row become amazing optional gymnasts. I’ve seen talent that would blow you away just up and quit. I’ve seen gymnasts earn full rides on D1 college teams suddenly retire from the sport.
You cannot base future outcomes on compulsory performance. Level 3 is relatively easy compared to level 4 and 5. This often is a problem with kids used to being at the top of the list in level 3 suddenly struggling in level 4. Your child at 8 years old doesn’t need the stress from the pressure to be the same as she was last season. She can feel it even if you’ve avoided voicing it to her. But I have a feeling, because I’ve been in the sport a long time, that you have spoken it in front of her or to her. You have to understand that each level is different, and each kid is different and progresses and regresses at their own pace. (Yes, they do regress, even with the best coaching and environment).
Don't base your expectations on level 3, because its just doesn't matter when it comes to future ability and success. If she's happy there, give it another year, yes, even if she has to repeat level 4. But seriously, you do not want your daughter to go to level 6 if she's struggling to get a 36 AA in level 4. Trust the process, because there are factors that you don't understand about the sport. (I thought I understood it pretty good after 11 years of my kids competing, but when I started studying for my first judging test, I realized that I knew nothing.) Take a deep breath and enjoy watching her, because even the worst kid in the gym is better than the average kid on the street. Enjoy this time with her at this young age. You can worry later when she's a little older and has time to figure out what she wants from the sport and where she's going.