OP - I owe you a massive apology, I am very sorry for doubting your motives and for making out you were a drama llama.
Each Bundesland is now sending out letters - we got ours yesterday.
Germany, unlike Netherlands, is giving Brits three months to sort out their affairs. We have until the 29th June. This has only just been decided afaik.
I met some expats yesterday - the ones who, for various reasons, didn't take up dual citizenship, or whose applications are still in the system or who didn't want citizenship full-stop and many were as upset as your friend as to the relatively short timescale, so I can see now why she would have been upset/may have overreacted.
The other information you have been given, however, is correct.
If she is married to a German with children born in Germany, this will form the basis of her right to stay/get a residency card-visa...like the American spouses with German-born children do. Or she can become a German citizen but having sat on that decision for 2 years (maybe her German is not fluent, maybe she couldn't afford it at the time, no idea) she will now have to renounce her British citizenship I would have thought - as a pp said, such applications take longer than a month: she might get lucky in that the date she applied/got it in, is taken into account but leaving it to the last minute was unwise if she wanted dual.
There should be no problems with long term residency though but she only has the next quarter to sort that - if she is family-insured on her husband's health insurance then that should stay the same/pensions might be a grey area.
Hope that helps, again I am sincerely sorry - I am an immature twat, but I am mature enough to step up when I have maligned a poster/got it wrong.
Hope you have a nice holiday in March and that any Brexit chaos does not affect you personally. At least you can hoof it back to Oz! 