I see where you're coming from. You can't help but feel like you were her best friend during the beginning of her romance, and you were offered the honor of being MOH. Now it appears that you're no longer needed, your friendship is no longer called upon so frequently, and you are no longer considered for a place of honor in the wedding.
That would be a disappointment.
I personally had no expectations of my MOH or BMs except for their presence. They arrived from Nevada, South Carolina, and North Carolina to my home in Minnesota the night before the wedding. Reading on this forum and blog, though, makes me feel like I'm in the overwhelming minority with having no month-long list of MOH responsibilities! I also have come to think of a typical MOH as having more responsibility than a BM, and while you couldn't swing the logistics of being MOH, I see how you could have managed being a BM.
I also suspect (as do others) that this particular bride would be very demanding of her MOH, so being honest with her about your limitations was good for both of you, IMO. I don't think your responses should have forced her to consider you incapable of being a 'regular' BM, though. I think there's a middle ground in there. I see from the other responses that I'm not in the majority in thinking that, though.
If the wedding happens, you can select a nice gift, make a 2-day trip to the wedding, attend with no obligation except to celebrate with your friend, sit with your family, dance with your DH, and wear whatever you want... and that's not all bad, right?