Secret Santa is totally optional. The person who cheaps out doesn't stint on herself. She wears jewelry that she purchases at high end craft shows, has her nails done every week, goes on nice vacations, not that she shouldn't. She once told me that she picks up things for gifts and keeps a stock to give away. When I was the recipient, I was told that it was chosen especially for me which I believed up until another friend mentioned what she was given as a hostess gift, the same item. I got the nicest of the awful gifts to date, a pressed glass apple shaped votive candle holder with a gold plated stem. I almost want to go get this year's recipient a replacement gift, it was embarrassingly tacky.
The problem I have with all this is that it doesn't matter if she doesn't cheap out herself. Personally, I would feel very awkward if I were the only person in an office that doesn't participate in Secret Santa...but at the same time, I think that $25 is a little much to gift to coworkers I don't have a personal relationship
with. Even though I could easily afford it. Yes, I think that if she agrees to "play" she should follow the rules, but is not possible that she actually believes she is following the game rules. For instance, you seem to view this as a $25 requirement vs. a $25 limit. She might actually think these "tacky" gifts are nice and appropriate for an office gift exchange...or maybe she doesn't care.
To answer your specific questions, I think that if someone gets a regularly priced $25 gift for less than $25, then good for them. I don't think they have to spend exactly $25.
What to do about this particular gift giver? Well, you could evaluate the Secret Santa. What is the purpose and is it being met? I would think that the goal is to do something fun at work and to have a good time trying to guess who your "santa" is. I would think that a secondary goal is to bring some closeness and bonding to the group. But, if what it's doing is causing a burden for people to go spend $25 on people they don't have a personal relationship
with and then feeling like the gifts aren't quite right or one person is giving gifts that are so bad that other coworkers want to give replacement gifts, then the goal isn't being met and the game needs to be reevaluated.
Also, if the office is going to do this, I'd suggest a price range. Such as $15-$20 for example. That communicates that a $1 store item may not be appropriate and makes it clear what the parameters are. A blanket $25 rule may be taken as a range from $0-$25 (which is a big gap) by some, while others think of it as a strict $25 requirement.
But, really, I don't think you should do anything about this. This is a work gift exchange, so put it in perspective. Yes, it sucks to get crappy gifts but, you don't really know your coworkers situation (despite what her jewelry and nails may indicate) and you don't know her true motivation for buying the "cheap" gifts. I think the kindest thing to do is accept what you get graciously. If you don't like the gift, then get rid of it.