I just realized something that is so simple, it's stupid.
If she wants the dog back and tries to sue you or calls the police, the burden of proof is on her. If she can't prove it's her dog, then she doesn't have a leg to stand on. My guess is she doesn't have vet bills to prove anything and, if she does, yours are more recent anyway.
Microchipping would be a good idea; the owners info is all stored in a database, including name, address, phone number, etc. By running the scanner over the dog, it returns a number and you call the database folks and they give you the info stored on the chip.