I think I also would want to avoid court,,and I also agree with treading lightly since the dog is still in her name, money you've paid for her or not, that dog is legally owned by the breeder so she could come in and yank her out of your home no questions asked.
I guess I would probably do just what you are doing, but then again, I guess if I were you, I'd think long and hard about what I wanted...do you really want to keep this dog?? If so, I'd probably ask for 1/2 the vet bills at this point, and chalk it up to a learned experience. If she refuses, I'd ask her since I PAID for her, transfer ownership NOW.
But then again, you have a contract that your not sure what it states,,I'd get a copy of that and start reading..Good luck!
diane