I don't really see that there is a question here that she needs to go asap.
She is getting out of control, you say?
She is making demands others don't use this or that, like pellet bedding?
Wants to use YOUR horse for her friends?
In what world is she living to think any of that is acceptable?
I would have booted her long ago.
No reasons to give, you had a change of mind.
Just say it is your barn to manage and your decision to make, you rule.
Any advice on how best to deal with her in a nice way, before I flip out on her and show her the door?
Show her the door before you flip out? (Seriously, she needs to go -- the know-it-all-ness is bad, but the assumption that she could put some stranger on your horse and you'd be happy about it is really beyond the pale.)
I think I would just tell her: "This is the way things are at this barn, and they will not be changing. No one is going to change their bedding to suit your desires, etc., etc., etc. If it is something you can live with and not complain about, then this may work out. If it is not something you can live with and if you are going to continue bringing it up, then this barn won't be a good fit for you."
Something like that. And regarding asking for her friend to ride your horse...well...it was definitely forward, but at least she asked! Now that you said no, she needs to never bring it up again.
Don't know where you are but I think I have had this person's twin in my barn -
Trust me, it will not improve, it will only get worse as they continue to unravel. Save yourself, your fellow boarders and the horses alot of tension and unhappiness and rid yourself of this person asap.