I think the best thing to do would be to try your hardest to separate her clothes from your clothes and just return the whole lot to her. It does seem unusual to ask for hand me downs back. Its not really a charitable gift but more a temporary item you can borrow to help you out. I wouldn't like it much either. But since she has told you this, I think it would be better, stress-free and better for piece of mind in the long run to not accept anything and just buy your own. Otherwise you'll be walking on eggshells with the clothes. That way there is no awkwardness. Maybe tell her that you can't guarantee that the clothes would remain unsoiled and you don't want to have to upset her by not being able to hand her clothes back in a good condition (babies are messy!). Even though the clothes may be helpful for you in the short term, with how attached this friend seems to be to these baby clothes and that her wording has indicated that 'the clothes are still her property' instead of an unequivocal gift to you, I think it would be better to just let this go. Otherwise it may lead to more upset on both parties further down the line.
At least if you buy your own clothes, you are not obligated to anyone. Just thank her and let it go. Return the whole lot.