You should both go back to the travel agents. I think you will find that she may only lose her deposit as your holiday is a few months away.
Did your own holiday costs reduce when she was added? If so then your holiday would be recosted. As lead passenger you could of course, do this without your ex friend. Her money was paid directly to the TA so I am not sure why she would think she could sue you.

You don't have her money the travel agent does.

As lead passenger you could ask the travel agent about her cancellation. Depending on how long it is before you travel, she may be entitled to a part refund.

I would question the comment "Lead Passenger". The OP made a booking. Her friend then decided to join her on the holiday so made a booking with the travel agent - the two booking may be linked but I don't think the OP is lead passenger here.

Your friend needs to speak with the agent first. If they say you are the lead for the booking then on her behalf you can cancel her booking

Fwh, the poster originally wrote "She booked herself under my original booking and paid in full. "

Which made me, for one, assume the friend was added to her booking. If this isn't the case, then the friend's booking is totally separate and nothing to do with the OP. We'll have to see if the OP (original poster) comes back to clarify.

I understand your view though.