The confusion is in her mind. Collage refers to the various objects that are applied to the surface (or appliqued, to use the French word). It's a mix. If I add cream and sugar to my coffee, it's a coffee collage, regardless whether I stir it with a spoon, fork, or my index finger.
Your issue sounds like one of integrity: will you align yourself with someone who is selling something using misinformation? Clearly, it's not merely her pride that's the problem (and it is), but her lack of truthfulness. I'd use the words "integrity" and "honesty" and "truthfulness" (or their antonyms) in a private conversation with her. If she refuses to admit that selling something as something it's not, I'd part ways with her. You have your own reputation to uphold, and if your friend can't support that, is she really a friend?