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My question to you is: do I keep trying to make her understand that this is a very good opportunity for her or do I call it quits with the possibility of legal action for breach of contract.
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you tell her flat-out that the only people who "make it" are the ones who work their asses off for it, and that her efforts aren't cutting it
don't be mean, be honest. she might get pissed now, but if she's successful down the road, she'll thank you for the kick in the ass. if she fails, then your words will ring true in her head every time she thinks about her would-be music career.