Will my daughter's baby teeth still fall out properly if they have decayed?

Not necessarily. Many teeth that are decayed do not fall out properly and on schedule. Regular dental check ups are required in order to first restore these teeth and to monitor the exfoliation of these teeth and make sure the permanant teeth replace the baby teeth.
Infection. Decay is infection that needs immediate treatment. Infected baby teeth can cause damage to underlying permanent teeth and the bone that houses the teeth, altering timing and order of eruption, creating a malocclusion. Please put the computer down and call your child's dentist, now!
Depends if treated. If the decay has been treated and no more is present, they may fall out and be replaced normally. Untreated decay can result in infection, and broken teeth may have to be extracted. See a dentist.