Although there exists a legion of exceptions to these two broad generalizations, there's also no doubt that many of us have seen the results of the typical conduct. The list goes on. The only reason anything gets accomplished is because of the presence of some minimum productivity standard. Typically, there is no solution short of getting rid of an incompetent manager. Life is tough.
Hard decisions have to be made.
It sounds harsh, but you have to be honest with her and yourself. If she's not right for the job, there are rarely any other solutions. Remember, if someone in your department manages some part of it into the ground, the next layoff could be you. Believe differently at your peril. The real tough human resource and project management issues, however, are dealt with on an almost daily basis by small business owners who are often unprepared to work with an accidentally assembled team.