The World's Worst Liar.
It almost blows your mind that she continues without realizing how ridiculous her lies sound. She really doesn't give a da*n.
Being a Liar does not make you insane.
They will say her changing stories and the craziness of them shows she is.
I am still catching up, but I wanted to say you are spot on.
She is not insane but she is a pathological liar, I have unfortunately known a few and in my younger years, fell for the lies but I was burned, and I learned from the situations. In the past two to three decades I have seen others fall for pathological liars until they don't. There is always something that will make a person question what they are being told by an (unknown, at the time) pathological liar. Once that time happens, they will never trust what that person says ever again.
AS was past that point, but she doesn't know that, or will not admit that to herself.
She cannot see past the lies, probably having had much success throughout her life previously. I don't think she sees that he is doubting her, as much as he is.
Back to your point, she is the world's worst liar, but she is a pathological liar.
I have no idea if that is even in the DSM alone or if it is a symptom of something else, BUT it is not insane, by any means.
It is lying for attention or lying to remove yourself from any responsibility. She will NEVER accept any responsibility, it will always be someone else's fault.
ETA: Examples: One pathological liar, whom I had already sussed out but others were still under the spell, sat in my living room in 1996, watching the men's field hockey, England was playing (this was way before I moved to Canada), and I noticed a new tattoo on his leg, I pretended to be looking for a magazine under the coffee table and read what it said, it was a list of field hockey tournaments (He played field hockey), it said England Team Atlanta 1996. I already had figured out he was not a DJ In London's biggest nightclub at the time and did not have testicular cancer like he had told everyone, I knew his sister. After he told people he had played in that game and would show off the tattoo as 'proof'.
Another pathological liar, also already sussed, asked how i was doing after having surgery for impacted wisdom teeth, then said " Yeh, I had all of my wisdom teeth removed and they ALL grew back!'.
I just said " wow, never heard of that before"
JMO