It means the agent is interested enough. So I think it's up to you. If you really want representation by this agent, you might want to consider the rewrite, in the hopes that she will take you on. There's always a chance that she looks at the rewrites and still says no. But are you willing to go the extra mile? If you do go ahead, make sure you save your old version... so you can always go back to it.
I think what this agent is saying is, she sees the potentials, but she's not ready to take you on yet. But if you would rewrite the proposal and send it to her again, she will consider it again. So it's not a no. But it's certainly not a yes. The rest is up to you.
And since it's only the proposal, you really don't have much to lose. It's not like she's asking you to rewrite your whole ms.