I wouldnt continue in this relationship. Shes very unbalanced. Doesnt sound like a good mix for anything to continue at least on a healthy issue. The best thing you can do for her is to end it-and STOP hanging out with her. Thats why she hasnt been able to move on-youre always hanging out. I understand you dont want to hurt her-but hanging on or around will only make it worse. She sounds very insecure. And honestly somewhat immature-maybe not ready for a real committment. She needs to do some growing up and be by herself for awhile.
When a person is that mixed up with themselves it causes a lot of difficulties in a relationship. Shes doing it now. And the only way this could work is if she were to realize or recognize her own issues and work on them. If you sat down and talked to her and told her what the issues were for you-she might take the iniative to try and make things better or work. But dont depend on it. People have to change for themselves first.
At this point I think breaking it off completely is the best thing for both of you-let her move on heal. And you do the same!
Goodluck...
everything happens for a reason...beginning to wonder why.