I'm not entirely sure whether you are arguing that the OP is not recoverable, or asking the authority to exercise their discretion not to recover a recoverable overpayment.
In the former case whether, she can reasonably have been expected to have realised that she had been overpaid is relevant. But only if you can also establish that the OP arose as a result of an official error. In this case, probably because she informed the authority of the changes of circumstance (or you can demonstrate that they were already aware of them) and they failed to act on the information. If you can demonstrate both official error and that she could not be expected to realise that she had been overpaid, then the OP is not recoverable.
In any event, if you appeal the decision (even by making a late appeal), recovery should be suspended pending an appeal which should stabilise the situation for the time being.
However, I think that you are probably looking at the latter strategy.
In this case, I think that you have quite a good argument. What evidence is there as to whether or not she got the help requested in the letter from 2005? If she didn't then it strengthens the case.
You may also be able to get round the lack of medical evidence by asking for a copy of the claim form and medical reports from he DLA claim from DWP, if the evidence was strong enough to get her HRM/HRC then it could well be quite helpful for this matter.
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