Yes, you are correct the Veterans Benefits and Transition Act of 2018 became Public law on December 31, 2018, and would allow your spouse to claim Kentucky for tax purposes. Then her income from New York would be taxable in Kentucky. Yes, she would have to file as a resident for Kentucky and as a nonresident for New York.
Since the law was just passed at the end of 2018 it might take a while for some states to establish their procedures. Tax preparation software can only be updated after the States establish their procedures.