I cannot stand people who want to make their own little real-life soap opera by inventing or embellishing story lines involving real people. Just why are they so invested in your own life and totally unable to process mundane facts and opinions without twisting them and stirring up disharmony?
They often act arrogantly as though they are the gatekeeper for your life and everything you do must be known by them and subject to their personal approval or otherwise. The ridiculous stuff they'll seize on, remember and try to make you explain/justify to them, such as "My friend said she saw you coming out of Morrisons today" as if you'd been caught kicking puppies. Horribly controlling.
The only way to deal with somebody like this, if you don't go completely NC that is, is indeed the grey rock method, as several PPs have said.
Actually, on reflection, I'd probably go for the pre-calling out tactic instead:
"What do you think of tattoos?"
"Why does it matter? Why do you ask?"
"I was just interested in your opinion."
"Well, I'm not going to discuss it as we all know what you'll do with anything I tell you - pounce on every word, twist them, use it against me and stir up trouble with other people - making me look like the bad guy so that you can make yourself feel better about yourself."
"How can you say that? That's really hurtful."
"It is indeed hurtful - I've no idea why you keep on doing it."
Ideally, get her other targets on board too and get them to do the same with her. She'll soon feel terribly frustrated and bored when nobody will give her any material to work with apart from agreeing that 'yes, it is a bit chilly out today'. Hopefully, it will force her to confront her ways and to realise what she's lost through her own behaviour, demonstrating that she absolutely cannot be trusted. Think of it like the equivalent of an ASBO ankle tag, if you will.