The first thing to check on that seat is, what harness position is it in? Since she is still using the harness, the headrest/harness position must NOT be in the very top "slot", as that is for booster use only (I just thought to mention this, since so many people find their 2 and 3 year olds have outgrown this seat, since the useable-with-harness slots are very low).
If she's in the second-to top slot, and her shoulders are not above it, then one thing you can do is call Cosco/Dorel and ask them for a new harness. It might cost a couple bucks, but they are now made of a less-ropy polyester that might work a lot better than the twisty, ropy nylon things that, yes, you DO have to flatten out for every use, so the crash forces get spread evenly, and aren't concentrated in thin little bands. Some people find buckling the harness and pulling it tight when not in use helps keep them flat.
If she's too tall for the harness, then you can start using the seat as a booster (I think the instructions indicate you must take off the base, raise the head position to the top, and remove the harness), or you can look at seats with taller top harness slots that will harness above 40 pounds, such as the Britax Husky or Marathon, or the Nania Airway.
If you think she's ready for a booster (will sit still with the seatbelt properly positioned, and won't flop over a lot when sleeping), but don't like using the AO as a booster, then you can look for one of a variety of boosters now on the market, like the Graco Turbo, Evenflo Big Kid, or Britax Starriser Comfy.
Anyway, hope that helps a little,
Edit: Bazanna, you beat me to to the posting buttion! Well, at least we are consistent!