Unfortunately it doesn't matter if she's lying. If a landlord is getting feedback that you were not good tenants, it does cast a shadow of doubt. Sounds like this is a slander case and although I'm not in your state, You shouldn't need a lawyer for small claims. Just proof that she's cost you money.
All of your repairs sound like a headache no landlord wants. The painting one would bother me as a LL. You accepted the property at one time in its current state. If she didn't offer to paint it then, did you have the right to paint it and try to charge her? Rewiring a house is very expensive. Going about making so many changes to her property without her permission makes you sound like the kind of person Id not want living in my property. Safety is one thing but YOU chose to live there. Was it really that bad when you move in?
Are you sure you're allowed to demand a security deposit back while living in the home? I never never never give back security deposit till I have had a chance to inspect the place completely vacant. How else would we be able to establish what to charge you?
Yes the law clearly states that if the landlord does not prove the location of the deposit within 20 days or return the deposit from the time the letter was delivered to their mail box then they owe the deposit. An additional 20 days and the tenant gets double. This is before the tenant even moves out. It also clearly states court is not needed to enforce this because it is clearly written. However, I can still go to court, but if I do that I'm gonna charge her with everythign I have.
Far as the changes go to the property. The landlord was written notices of the repairs needed. She refused to make the repairs. She was given another notice of intent to repair and notified that would reserve legal right to take maximum 25% of the rent each month these repairs are made. THe tenant code states she has 20 days to dispute changes being allowed, or state no, or have the repairs made.
Due to the fact we were on unemployment it was the only place we could get approve.
BEFORE WE MOVED IN WE GOT IN WRITING FROM HER that the place looked like crap and needed repairs. We also got in writing that any repairs we wanted to make we could including painting. We also got in writing that we could take it out of the rent. It is apart of the lease.