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Maybe she terminated her membership? I know two people (a friend's mother and a former sister of mine) who still say they are XYZs although they resigned their membership during college. They do not seem to understand that technically they are not in their sororities anymore. They seem to equate initiation with full membership.
But it sounds like you know her well enough to know she is making it up. I would definitely go the passive aggressive route...I like the suggestion of telling her that she has been hearing the funniest thing...that people have been saying she is an XYZ. That will probably send the message strongly but without being rude.
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