So DB looked at me and said, "Did you lie to me?" "Of course not," I said. "I don't know why she said that-she is from there!" She just stared down at her plate and pretended to not hear that and Donny looked like he wanted to disappear. This is not the first time she has exhibited odd behavior.
Your brother was off here. And I think you were too. You both went straight to the idea of someone lying. How interesting!
Neither of you went to the "Oh, did someone misunderstand?" place. I can't figure out why not.
In the first place, accusing someone of lying is a HUGE insult. In terms of etiquette (which is what this blog is).
People used to slap one another in the face with gloves and face off with pistols at dawn over such an accusation!
We don't do that anymore, but it's still a huge thing to accuse someone of lying.
So he accused you, and you accused her. Instead of saying, "Oh, I must have misunderstood you, Donny's Wife!" You didn't even address her--you said, "I don't know why she said that" as if she weren't just sitting right there in front of you.
Neither one of you could have said, "Oh, someone must have misunderstood. Where -did- you grow up?"
Or even better, so as not to put her on the spot in terms of revealing stuff about herself (which you had already done with bad results), maybe "Oh, I must have misunderstood. That's too bad--we lived there once, and it was such a wonderful place to be a kid." And take the conversation away.
As to why she might say "I'm not from there"--maybe she has relatives there but didn't spent that much time as a kid. Maybe she was not being fully honest earlier (for whatever reason--it made her sound exotic, or you were assuming and she didn't want to correct you, and now she doesn't want to keep it all going now that it's spreading beyond just you).
I'm sort of curious--how did you come to believe that she was "born and raised" in the exotic locale? Because "having ethnic roots in a place" might mean you call it "home" in a few casual instances, and it might explain a visit. But that might not mean "born and raised" or "from there."