You are doing the RIGHT thing by giving this back to her.
One more thing you can tell her:
She is planning to sell this quilt. YOU do not have a business license and therefore cannot quilt for pay.
A professional quilter will have no problem charging her for quilting that quilt. I've seen miracles happen so I won't say the quilt is un-quiltable, it just sometimes depends on how much money you have to throw at a problem.