Here goes an Ephie Ramble:
Well, JUST to answer your question. I don't know. I've stayed in friendships where my friend/family member has been actively engaging in dysfunction and I've left friendships/family ties where the same has been going on. In either case, I've had to do a LOT of internal check ins.
What it comes down to is this: Am I getting something from this relationship. Is this relationship affirming my dysfunction and/or does enable me to shift out of it. When I'm with this person, am I the person I AM (and am learning to act as); do I feel like I have value and compassion, AND/or do I become someone who is fearful, shameful, obligated, compartmentalized, dishonest, self destructive, etc. Is that the inherent nature and product of this relationship, or something in ME that is stimulated by the situation, and CAN I learn about myself from working through it within the relationship? Am I here to fix THEM (which we don't get to do, no matter how we try), or am I here because it feels right, for me, to be here.
It's hard for me to work with/be in relationships with myself/people who are coping BY living in dysfunction (this is both a coping mechanism, as well as a system of damage). It's not something I get internally to change/fix, for another person. Though, I do get to choose (should that be my choice) to speak up and talk about my experience, what I see, how I feel, what's worked for me, and to share information about childhood trauma, adult addiction, statistics of domestic violence, etc.
For me, it's a LOT harder maintaining friendships/relationships where children are involved. Usually, it's been too hard for me to keep up. I can't deal with it on a personal level. Working next to folks in this situation, is somehow different because I'm not quite as emotionally invested and I don't make it about ME. The lines are clearer. I sometimes feel...toxic bearing witness to a loved ones damage. And, I forget that besides loving a person, offering resources and support, and being really honest (with myself and them), there's not a whole lot I CAN do to. Sometimes that feels liberating. Sometimes that feels really crappy.
And also, one minute it will feel right, and then it won't feel right again. So I have to spend a lot of energy checking in with myself (is this draining or invigorating. Is my investment conditional, is it about what I want them to do (am I pushing my agenda and what I think their path should be), or can I/do I want to/am I able to meet them where THEY are at?).
I've been in your friend's situation (before I had kids...although some elements of dysfunction are still with me/in my relationship and I get to/have to work out as a mother and wife too), so I resonate with your description.
My past is part of the reason why doing advocacy work, and sticking around for friends/family who are struggling in and with/their dysfunction, is productive for ME. I learn a lot about myself. I'm able to give back some of the strength and support that was lent to me (which feels empowering). AND also, it's dangerous, because it's VERY easy for me to fall into the: "I'll SAVE you" fallacy. Also, for me, it can be healing AND dysfunctional, and it's difficult to sort out.
If I'm able to see things as Just the Way it Is right now, it's different, for me than, this is what I want and I can't let go of it / this is the way it should be / this is about me.
PS, you're not going to be able to punish her or shock her into willingness to change. If she's willing to hear you out, about what you observe, that's fantastic. It's really more about where SHE's at and is able (within her internal context), to bring to the table, than what you're bringing to the table. This is decision is really, IMHO, about what feels right for YOU, and if you need to set boundaries for yourself...which is a personal decision and not about her or hers.