The lies were becoming true. At first it was the small things. People didn't want her to be wrong, so they rearranged things until her statements were correct.
However, increasingly strange things were happening - things beyond the power of mere humans. Some began to notice that if she could be convinced of even the most impossible things, those things would become fact. Tell her margarine was butter, and if she believed you, it actually became butter.
Word got around. She quickly became surrounded by some of the most unscrupulous people in the kingdom. A charlatan might dress himself up as the prince of a region in Europe, and soon he would find himself in fact the prince of a region in Europe.
At first the liars would retain memories of their true worlds, but eventually their own memories were being rewritten, and they would forget they were lying at all. They would believe they had been telling the truth all along. The game was becoming increasingly dangerous. At times, those who told her the truth were not able to convince her. The result was dire. When that happened, the truth would become false, and reality would rearrange itself, leaving the truth-teller with a memory of trying to lie to her, and failing.
She became a center of both fulfillment of the wildest dreams, and accidental unleashings of the darkest nightmares. Reality would never be stable around her, but in some ways it was. To her, everything just seemed normal - whatever was true had always been true, whatever was false had always been false.
Those most satisfied with their own lives were the most afraid to approach her, lest they accidentally undo their own reality. Those most desperate to change their situation were the most eager to approach her, hoping she would fix their reality for all eternity. As a result, she became surrounded by those most determined to maintain the status quo, trying to fend off the revolutionaries.