How do you deal with Munchausen syndrome?

What you're describing sounds very crazy, manipulative, and draining to be around (but it isn't Munchausen, more likely a significant personality disorder). You won't be able to change her, she isn't interested in change from everything you describe. You will have to deal with yourself and your own reactions. Minimize your conversations and reactions to the outlandish statements. Everything will be about containment. Provide convenient excuses for yourself and bail whenever you can from contact. It isn't likely to get better with her.