We can't tell you whether to drop the project, but we can illuminate some potential issues.
Is there copyright? The daughter's poem and letters are likely protected by copyright. (The author of a letter is the copyright owner.) If we assume these works are unpublished, copyright protection lasts until 2077 (life of the author plus 70 years). The expiration date would be different if the letters or poems had been published (95 years from publication or 70 years from the author's death, depending upon the year of publication).
Transfer of ownership ≠ transfer of copyright. Physical ownership of a work is not the same as copyright ownership. A copyright transfer can only be accomplished by the authority of the copyright owner. However, people who find abandoned artwork, manuscripts, and musical recordings can claim ownership of the physical objects.
Transfer of ownership ≠ publication. The acquisition of the works by the library doesn't affect their unpublished status. In a case involving author J.D. Salinger, recipients of unpublished letters from Salinger transferred ownership to the Princeton Library, where they were accessible for research purposes. When Salinger later learned that an author was planning to reproduce portions of the letters in a book, he registered the unpublished letters, sued, and won a judgment preventing the book's release.
Who owns the copyright? Whoever acquired the daughter's estate is the copyright owner of her poem and letters. That person or institution may not be aware of the copyright. Still, if they become aware, they can, like Salinger, register the unpublished materials and seek to prevent the release of your play or movie.
Paying the library. Unless the library acquired a written assignment from the copyright owner, they have no copyright claim. So, paying the library for the use of the materials won't get you copyright permission.
The photographs. The copyright in a photograph is owned by the photographer. As you can imagine, tracking down the copyright owners for 40- or 50-year-old photos is likely a fruitless quest. The photos are probably orphan works in most cases, placing the rights in limbo.
What to do? If your play/movie gets a good reception and a distributor or producer wants to become involved, you may want to see an attorney particularly if you have to sign an indemnity provision. An entertainment lawyer can guide you in the intricacies of fair use, and provide you with an opinion letter that you can use with insurers.
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