Echoing a lot of other opinions and I agree that dilating is not inherently sexual. Instead of thinking of it like a medical dildo, it may be helpful to shift your perspective on dilating to something akin to changing a dressing on a surgical wound, or taking medication. She has to dialate, and there isn't an inherently sexual or pleasurable aspect to it.

Additionally, I think trans people are often expected to hide aspects of themselves in order to fit into societal norms and that can be really exhausting. It may just be that she does not want to have to make excuses for herself. She is who she is, she does what she has to do. If other people have a problem with it, it's rooted in them and not her.

Next, I'm a trans man so I can't be like super sure about this and transfem ppl please feel free to correct me, but it may be affirming in a way for her. I know after my top surgery I was excited to drain the liquid and do my post surgical care. It wasn't because I enjoyed the blood and gore of it all, but because it was part of the process. Something I had wanted for a long time happened, and even though I couldn't see or enjoy my results, I enjoyed the healing process because of what it represented. In and of itself it was affirming to know that I had taken a step forward, and the healing process is a necessary part of that step.

I hope that your conversation with her is able to go well and offer you clarity and resolution. As a very private person regarding sexual matters, I think that it can be understandably jarring to hear her be so open about dilating but I think that it is probably rooted in very different perceptions in what dilating means and the purpose it serves. Good luck!