Reg 261 has two strands - the duty of care and the monetary compensation. The duty of care (refreshments, meals, hotac) applies in all cases. The monetary compensation provisions apply if the cancellation was for reasons that the airline could reasonably have foreseen.
Your friend should have been offered the hotel. As for the compensation, she might say yes, the airline would say no, the case would be referred to the National Enforcement Body who would make a ruling; if both sides continued to disagree it could end up in court.