As for abilities for Pinnochio... lemme see. Maybe she could be magical in the sense that she could manipulate all kinds of wood such as trees or boards, or even things that have been used for actual structures. Like buildings, furniture or whatnot. One could be to manipulate actual puppets too, use them for fighting or just doing chores around the house.

And I don't see why you couldn't use RWBY powers. We're allowed to pull from just about anything in terms of powers and abilities. Though maybe the multiple swords thing is something she has to work up to.