Since the work was primarily performed in your resident state and the employer did not consider her as working in VA, report all income on your MI resident return. No need to file a VA tax return.
Reason for some of the questions was to determine how her employer considered her status. Some states are aggressive in taxing telecommuters where the work is performed at home "for the employees convenience."
If the work location is up to the employee, it would be considered as work originating in the company's office and be taxed by that state. For example, PA company (and NY) will tax a telecommuter located in Texas if the location of work performance is not a requirement of the job. . I could not find any reference where VA has such a policy.
