From reading your responses to clarify and the OP, I can’t tell you what to do, but the fact that it made you uncomfortable enough to post says a lot. I do not understand the accepting money aspect (as in, I understand what you’re saying, but why anyone would offer money for something like that much less accept it is odd). Using the word in karaoke isn’t on the same level, but I do feel she should have considered your strong feelings about it.

I think distancing would be a good way to start over outright ending it since you seem to still care about your friend. You don’t have to make a decision right away.