"However, technically she is not ineligible to make contributions, but rather she will just have to pay the overpayment penalty, correct?"
No, that's not correct. She is ineligible to make the contribution if the foreign-earned income is excluded and she has no other compensation to support the contribution, as appears to be the case. She will be subject to a 6% excess-contribution penalty each year that the money remains in the account. Also, if this was her first Roth IRA contribution, an excess contribution does not start the 5-year clock for determining qualified distributions. to avoid a penalty every year she must obtain a return of the excess contribution.
