Tinks, no, dotty was commenting on this a few days ago - if someone's a new seller the money's retained for a while until ebay/PayPal make sure that the seller is bona fide. Was the 12 months feedback for the seller as a buyer until now, not as a seller? - some people buy for quite a while before they launch into selling.
You don't have to let eBay know - eBay will be looking at her feedback if she's a newby.
That's disgraceful about the condition of the item. I wouldn't leave neutral feedback, I would leave negative - items should be sold fit to put on straight away unless specifically stated otherwise. I've emailed buyers to say "sorry, slight delay, I had to wash it" if I've spotted a mark on an item as I'm packaging it. If things are marked (e.g. shoes I've worn) I always say so, so buyers can't say I've not told them.
I don't think the issue of releasing funds is odd (if she's new to selling) but people do try to pull the wool over sellers' eyes sometimes. If the item's not exactly as you expected, say so - I wouldn't leave a positive or a neutral in a case like this, it's a careless seller.